Topic: Interest and Bitcoin - Impossible? - page 4. (Read 6579 times)

Ugh, what drivel, that's LABOR that is sold, its value is derived from the necessity to use it as an input to producing a good or service.  The employer doesn't want the workers TIME they want only the product creation process completed and if anything they want it done in as LITTLE time as possible.  The use of time as a convenient measuring unit for labor (typically the menial kind) dose not mean time is what is being exchanged, the existence of contract work in which your paid to 'do the job' and not by the time involved shows this clearly.

When I say you can't exchange time I mean it in the sense that you can't have 9 women produce a baby in 1 month.  I can't buy it as a input to use in the production process even when it's essential to the process, say I am a vintner and someone places an order for wine and wants it delivered in a week, I can not go out and buy grape juice and buy some 'time' and combine them to make 3 year aged fine vintage wine for my customer.  I can get all the time I want but only by waiting, if I buy some vintage wine from someone else I'm buying a good, NOT time.

Missed this the first time. Exchanging your time in return for money or other consideration is exactly what you do when you accept hourly pay or salary. Time most definitely has a value. Ever heard the phrase, "Time is money?"

Suppose not everyone turns out to have the ability to pay me back.  Some percentage of the people I loan to will fail to pay me back.  My expected rate of return, E, is then E=P(1-x) where x is the ratio of people who will default and P is my principle. In this case I the lender do not get back what I lent out.

If I were to charge interest such that r = [1/(1-x)  - 1] my expected rate of return would then in fact be what I had lent out.  P = p(1-x)(1+[1/(1-x)-1])

Would it be fair for me to charge this rate of interest?

As to the original question of the thread, I would point out that as the amount of money you lend out increases your rate of interest must also decline as you saturate the demand for loanable funds.  Eventually the rate would fall below [1/(1-x)  - 1] and your expected rate of return would be below your principle, and your scheme would have reached its limit.

https://en.wikipedia.org/wiki/Time_preference

Your distinction is a meaningless Semantic flippancy, no one can exchange time itself so time can not have a value.  Only goods can be exchanged and in this case money is the good exchanged.  The rent is of the usage of money over time, thus we call it the time-value of money. 

This is not a term I created its a bed-rock term in financial theory that's centuries old

http://en.wikipedia.org/wiki/Time_value_of_money

Regardless if we agree that having money for a period of time is of value and that value can be denominated in the same money then we can express it as a percentage, typically around 5% per year and then try to answer the question of what gives rise to that value.

Again, it's not the time-vaue of money. it's the value of time. You have his capital. He does not. You are compensating him for that lost time.

I am not relying on any moral authority from these sources, the OP is the one who began discussion of Usury and it has already been mentioned several times.  I am pointing out that Usury is just a synonym for interest and has always been understood to mean interest from the oldest writings and usage of the word and both just mean a time based charge on lent money.   People have said they find 'usury' conveys a 'negative connotation on interest' which is hardly surprising because is just a a pejorative label.  Those preferring the term interest prefer it for exactly the opposite reason, they are rejecting the pejorative view of the same action.

My intent here is to dispel your absurd attempt to redefined interest as a labor cost, a redefinition that flies in thousands of years of common word usage and understanding as well as the existence in the financial industry of separate and distinct terms that DO refer to the labor costs involved in creating a loan such as 'closing costs' or 'origination fee'.

You state that as if I was not the one to bring that point into the the discussion just a few posts ago.  I've said repeatedly that interest is a renting out of the time-value of money.  If you agree to this then the debate can proceed further and we can discuses if this is legitimate or not.  If you feel it is legitimate you must explain how the lender created time value and would then be justifiably selling the fruits of his own labor.  I have show how time value is created by the marketplaces conferring of liquidity onto money, indeed the very term 'money' meaning a universally acceptable extinguisher of all debt is by that very definition maximally 'liquid' so money and liquidity are always synonymous.  I contend that a lender is illegitimately selling that which is created by the public at large and this is an unearned income, the flawed nature of hard money makes this illegitimate sale possible and even inevitable thus hard money should be abolished and replaced with demurrage.

You might want to actually read some of his papers or books, particularly the ones on this topic.  Or, you could just watch videos of his lectures.

Please note that I said "a fixed or declining hard money supply", which automatically precludes inflation, whether by fractional reserve or other means.

Except the value of having that money to use during the time it was lent out. Which is what you're compensating him for, at a rate that is worth the value (to you) of you having it to use during the time it was lent out.

I'm going to step out on a limb here, but...

I've not read Steve Keen, and have no intention of it.

What I am interested in there is if you can quickly answer 1 simple question...

Does he talk only about interest, or does he mix it with fractional reserve banking?

From the above exchanges, I can see how pure interest can make sense. It is merely an exchange of X BTC for X BTC plus some amount of productivity, be that in BTC or fish or grain or whatever. That is one thing.

Enter fractional reserve banking... The entire scenario changes. Banks print money out of thin air then charge interest on it.

This is fraud.

Pure fraud.

Nothing but fraud.

It is a criminal abuse of float time, and it would land you or me in prison if we did it.

Here's a better explanation of that:

http://cynic.me/2012/05/28/frackin-reserve-how-fractional-reserve-banking-creates-money-and-why-it-is-fraudulent-3-6/

Our current system has fractional reserves as low as 0%.

I do not think that interest and FRB are reconcilable in any remotely ethical system. I would like to think that with BTC having a hard limit, that it would be pure insanity to allow FRB with it.

Does that make sense to anyone?

Since no one else has mentioned it yet, I'll just note that Steve Keen has demonstrated pretty conclusively that interest is totally compatible with a fixed or declining hard money supply.

Typically, these questions come from people that confuse money with wealth, and/or disregard the passage of time.

Money is a tool to facilitate exchanges of wealth.  A loan is, disregarding the bookkeeping done in money terms, an exchange of X wealth today in return for X+Y wealth in the future.  The ratio of money to wealth at various points during the loan are not really important to the loan itself, they are only a factor in the decision to borrow or lend or not, and the terms.

Bible and Koran? Ok, but I wouldn't think for the sake of this discussion it to be constructive to refer to some authority that tells us what to do or what not, or how to specify usury.

Plus of course the depreciated value of unsound money like dollar, if you're paid back unit for unit regardless of time borrowed. But that's a minor issue.

The time-value of having [and being able to spend] one's own money is important. Consider an example where the lender has a mental condition where he's seriously disturbed by every day he does not have his dollars available for spending. He can offset this disturbance by agreeing to receive a compensation - interest - from the borrower causing this inconvenience, for every day that the situation continues.

Not many lenders are necessarily disturbed that way, but who can say how much they value having full control of their money. Or are you saying that there is some external authority who states that full control of your money should not be valued at all, and it would be the right thing to obey and not charge interest without questioning that?

You have a point. But I don't see why it couldn't be a time based fee, if both parties consider that all right in full understanding.

If your referring to the work to earn the money that's being lent it's fairly obvious this is not lost, rather it is returned exactly as it was.  Lend a dollar, be re-payed a dollar, nothing lost but the time-value of having a dollar for a period of time.  Lending involves virtually no labor what so ever even in the most hands on situations, no economist has ever been under the illusion that interest derived from this source.

Today most lenders simply deposit their money at a lending institute which performs all the work of finding, interviewing, validating the borrower and policing the repayment.  All such labor is part of the cost of the institute and yet the original lender will still be payed interest by the institute for the use of his money despite not lifting a finger in the laborious process.

Furthermore if the lender surplus derived from the source you describe then interest would not be a time based fee on money.  It would be like the closing cost on a house charged by a retailer, a percentage perhaps, but not one that varied based on the length of time money is borrowed.  But everywhere that interest exists and everything which is described as usury in the bible and koran is clearly defined as a time based charge, not a labor based one.

Yes he has "lost" something else as well: time-value of his personal life, the effort he has exerted to make the money available for the borrower. Some could even argue it's not only the time value of the act of making the money available, but the value of creating the value for himself in the first place.

You are omitting the parallel of renting money to providing a service. The lender provides a service of lending money (which necessarily involves work ie. value) and thus is well justified to charge a price for this service.

Again, if you prefer it this way: the price is not paid for the degradation of the borrowed thing, but for the service of borrowing it.

Thanks for the link BTW, I wasn't aware of the term. Monopolistic abuse is a different matter altogether and should be combat it at all possible, without falling into the way of tyranny and escalation of the same monopoly to harsher levels as a consequence.

http://en.wikipedia.org/wiki/Economic_rent

Are you guys even aware that 'economic rent' means a price in excess of the fair market value that a asset holder extracts because of of holding a monopoly position?  Yes I deny the right to collect rent for anything, only a competitive market produces fair values.  The layman term 'rent' is used to describe any usage fee without regard to it's fairness.

Hotel rooms and capital goods are degraded by usage, the 'rent' we pay for these things just reflects a breaking up of their total usable life-spans into smaller chunks and selling those in chunks to different people, competition brings the rent on these things down to parity with the cost to make them.

Money when your done renting it is identical to what was lent out, the lender has lost nothing so you can not claim he has sold anything but the time-value of money.  This can not be equated with the rent on a real asset which asset which will eventually decay away, money is immortal.  If you rent someones physical assets you can never give it back as it was and rents are thus justified. 

But money is a social construct, a mere accounting tool of exchange, if I borrow the number Pi from you I don't consume it, degrade it, or makes it less able to calculate the circumference of a circle.  So why should anyone be paid a time based usage fee on something that can't be used up?  The only reason is if the lender is simply exploiting a monopolistic position by withholding money from its intended purpose of circulation and wont release the hostage without a ransom.

"I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it." - Thomas Jefferson

Now that's a good analogy! No need to obfuscate the issue behind difficult concepts.

Denying the right to charge rent, ie. cost for lending your money, or lending anything else, or providing any other service would eventually imply denying the right to charge for production of any service.

That would work only in an altruistic-communistic utopia (which no doubt is coming, but not anytime soon). It means getting rid of business altogether.

Besides morally, the right to do something or not [charge interest] is born from the mutual agreement of the two parties involved, and generally it is not beneficial to apply authoritative supervision to the validity of such agreements. Cases of deception can be found in usury, like any interaction between humans.

It is right (but unpractical) to try to apply supervision in order to prevent deception. What [level of interest] constitutes deception, is difficult to measure, and changes case by case. It depends on the situation of the borrower as well as the lender, the capabilities of the borrower for future work, the intellectual capacity and education of the borrower etc... impossible to evaluate. So restrict it all or give full responsibility to the parties of agreements? I say the latter, because restriction leads to the slippery slope of having to restrict all business -> TYRANNY.

No?

Seems to be a booming industry on just exactly that in India.

And it's not the "time value of money." It's the "value of time." Specifically, the time during which which you are holding the lender's assets. Interest is no different from rent on land or equipment, or even the price of a hotel room for the night. You're using someone else's capital, and that means that for that time, they cannot. That's what you're paying for.

Ah we arrive at the crux of the issue, to whom dose the time-value of money come FROM and to whom dose it GO.  The time value of money is entirely from the markets willingness to accept it as a medium of exchange.  If money ceases to be liquid it immediately ceases to have any time value.  Even a commodity like gold coins, when they are not the universally accepted payment and are thus not liquid cease to have time value, I can not loan gold or any commodity at interest.

Society as a whole in it's collective decision to elevate something as 'money' gives time value to that money independent of any intrinsic value it might have had or any increase in exchange value society puts on the money, commodity money at face value would still gain time value.  Thus we can see quite clearly it is not the saver who is creating time value, thus they can make no claim to receiving it.  In fact it is the saver who should be paying for time value, which is what demurrage dose.