Nigel Response Central Banking

Nigel Jarman
Re. scarcities, I always thought the big C kinda created as many cheap affordable items as humanly possible, on the basis that if you didn't, your competitor did and you'd go out of business.

I'm a fan of RBE, but to me, RBE = whatever works best, the current runner to that is the big C, but if we can find anything better, I'm all for that too.

All we have to do is test it, document the results and see.

I quite fancy trying that in a MMORPG environment first, as its nicely controlled and all the data can be made available if its ones own creation.

So far experimenting a little, profit sharing cooperatives appear to work well, but only if you have a good boss at the top.

Quite how you get one at the top if you start off with a bad one, I'm not sure..

Reginald Livingston
^ Prices already do this

Nigel Jarman
But in a way that doesn't involve the destruction of the business with the bad boss, can't you just replace the boss somehow, or do we always have to rely on market forces to get rid of the poorly managed businesses.. ?

Just seems a bit inefficient to me..

Mãlour Ængles
MMORPG environments do not simulate real life risk taking. One of the reasons games are fun is because there are no consequences that affect your real life. It will not work as a way to perform economic experiments.

Nigel Jarman
Many anthropologists are now using MMORPG's to study human behaviour, as it comes pretty close in many areas to our behaviour in real life.

I think it would be a valuable step to take, before one runs experiments in real life, so one can help design a better test there.

I quite agree there are aspects which I've not seen as yet a good way to simulate, eg. producing children, how do you stop MMORPG babies from committing suicide if they are born the wrong gender.

Brian Tockey
"But in a way that doesn't involve the destruction of the business with the bad boss, can't you just replace the boss somehow, or do we always have to rely on market forces to get rid of the poorly managed businesses.. ?

Just seems a bit inefficient to me.."

Biological evolution is completely inefficient, all that fighting and reproducing and competing. Someone should declare what the 'right' organism is and just make it so we don't have to worry about the whole 'natural selection' and 'adaptation' and 'genetic diversity' noise.

Reginald Livingston
Brian I think that was exactly his point.
To actually address your concern Nigel, businesses don't get destroyed, as businesses aren't a thing. A business is a collection of people working together as a team, we just call a team focused on commercial success a 'business'. When a bad boss holds this team back, the market bids resources away from him and towards good bosses through the price system. This can take the form of the boss's workers and administrators finding better employment opportunities elsewhere, it can also take the form of the boss's boss/co-workers throwing him out and hiring a new boss.

Brian Tockey
Shoulda not been inefficient and shoulda hired the right guy in the first place.

Jeez, do u even REB?

Nigel Jarman
Destruction occurs when research and equipment is junked, when production lines are taken apart, when all that effort is for the most part thrown away and someone else starts from scratch.

I've noticed that companies/organizations that get the right boss in the first place are fine, but the wrong boss then just hires the wrong people, who in turn hire more wrong people, until the company/organization goes bust.

I notice there are a lot of those kind of companies springing up all the time and disappearing.

I wonder, is there a better way to do things, so that the bad boss can be replaced with a better one, other than letting the market cause the business/etc. to go bust.

You might have say 100 companies all working on creating an social network system, all competing against each other, all not sharing each others work.

If there was a more cooperative way for everyone to work together so that the efforts wasn't so much wasted on duplicated work, on companies being created and then disappearing.

Reginald Livingston
^ Austrian Business Cycle Theory explains this. The only way that bad bosses can command resources like that in an economy is through inflationary monetary policy. This drives interest rates below the market clearing rate, the natural result is worse investments, which historically manifest as less skilled entrepreneurs getting loans to command resources for projects that can't be completed profitably.

As for company networks sharing research and development, they already exist. Companies figured out a long time ago that keeping their best and brightest in the loop on the latest discoveries and techniques makes them the most money, so everyone either shares their research openly with one another with mutual benefit, or they sell these advanced technologies and techniques on the market, making substantial profits, far ahead of sales and interest rates due to the value of such discoveries.

Prices reflect the desires of humanity and the resources available to them in an objective and quantifiable form that makes calculating production across the globe and across time possible, and this includes people engaged in business interests. Cooperating is very efficient, that's why people cooperate.

Nigel Jarman
Do you think we can improve on the current way of doing things, and if so, how ?

Nigel Jarman
> which historically manifest as less skilled entrepreneurs getting loans to command resources
> for projects that can't be completed profitably.

Question, does that mean that crowdfunding is good or bad in that relation ?

Reginald Livingston
Eliminate the political option and humans will cooperate as much as possible, coordinating resources as efficiently as possible, as they will take heed of the prices of goods (their own or others). As each person adjusts their time and efforts towards their most valued ends, the pool of resources available to humanity as a whole increases, raising wages/earnings, and decreases the cost of doing -everything-. The natural human desires to excel, to prosper, to make peace, to accomplish that which has never been accomplished, to cure the sick, to feed the starving, to make technological discoveries we could old dream of, etc etc would be unleashed, and would far surpass the ability of the tyrant to suppress it, or even the desire of those who would wish to be tyrants to seek their gains in tyranny.

Reginald Livingston
On crowdfunding, it is another method by which entrepreneurs can raise capital. In a sense, the contributors become shareholders, although instead of holding a piece of the company they are letting their desires as consumers be heard by gifting the resources that entrepreneur needs in order to attempt his project. Each of those consumers are forgoing consumption of resources that they produced, by the nature of their gift, which means that the resources do exist to complete the project. However, it would be up to the consumers who pay for the goods produced by this project, as well as the skill of the entrepreneur, to decide if that project is profitable.

Nigel Jarman
Which political options do you think are the ones which we could benefit the most from reducing/removing ?

Nigel Jarman
> an economy is through inflationary monetary policy. This drives interest rates below
> the market clearing rate,

What is an example of an inflationary monetary policy ?

And what is the market clearing rate ?

FX [ Tries to understand better how things work. ]

Reginald Livingston
An example of inflationary monetary policy is central banking, a system in use globally today, although it is not the only example. In the United States, the federal government issues government bonds that are sold into the market. The federal reserve bank then writes money into existence to purchase these bonds in order to influence interest rates, typically downward (increase the supply of money and you decrease the price of money, which is the interest rate). The fed was created by the government and was delegated the congressional power of 'coining money' which has now turned into typing numbers into bank accounts. The money created by the fed and then spent into the economy is not equalled by an increase in the supply of new goods or services, as consumer valuation nor scarcity in the factors of production are considered in the price for that newly created money. As more money is used to bid for an ever shrinking stockpile of goods, prices increase, and wealth is destroyed.

Before central banking or government-protected banking in general, banks could only get money by providing two consumer valued services: saving money for depositors, and investing money for investors. A bank kept depositor's money safe (usually for free up to a certain limit) and usually charged a fee for checking accounts (this was the service they were providing to depositors, the safe transfer of money). As a depositor saved money and grew their account, investment options to further grow that account became available. All the while, the source of the depositor's savings are the goods and services they produce in society, real resources, of which they decide to not consume.

Depositors would buy investment instruments from banks under contract to deliver a certain return to the owner of the instrument, the depositor becoming an investor. As both the bank and the investor understood what the money was being used for, there were no conflicts with the bank's ability to meet obligations (it was tied up in investments and so the price paid for the instrument was not available for withdraw). Banks that decided to engage in risky investments that didn't pan out were either put under new management or quickly liquidated by depositors and investors to prevent further damage to the wealth of the community. Banks that had a good reputation and invested the community's money (and therefore resources) wisely, were rewarded with more depositors and more investors.

The market clearing rate for interest is that which emerges from the interactions of supply and demand for money across time as it relates to resources in the economy.

When the supply of resources available to society is low compared to what consumers are demanding of entrepreneurs right now, interest rates rise, as banks will not have as many loanable funds (less depositors and less investors). This tells entrepreneurs that resources available in the community are limited, and the demands of the consumer are immediate (high interest rates means projects that won't complete for a very long time are less profitable, where projects that complete quickly are more profitable).

When the supply of resources available to society is high compared to what consumers are demanding of entrepreneurs right now, interest rates fall, as banks now have more loanable funds (more depositors and more investors). This tells entrepreneurs that resources available in the community are abundant, and the demands of the consumer are for goods in the more distant future (low interest rates means projects that won't complete for a very long time are easier to finance and turn a profit, where projects that complete quickly are comparatively less profitable).

When central banks create money, they ignore this delicate balance of resources and interest, giving entrepreneurs the low interest rate signal in an economy with less resources and more immediate demands. The result is many of the projects started will fail because the resources needed to complete them do not exist in the community. As entrepreneurs get more and more newly created money, they bid up the price of the factors of production, and the real scarcity of the community's resources are revealed. This comes at a time when these entrepreneurs are in the middle of long term projects, which must be scrapped in the face of higher prices.

Governments and central banks tend to respond to this with more money creation, which only further misleads entrepreneurs and diminishes resources, causing more inefficiencies and scarcities. Other responses by government are to engage in legally enforced price controls which lead to shortages, or rationing. History is full of many more examples of government attempts to correct the consequences of inflationary monetary policy.

As for political options, I don't prefer any of them.

TL;DR -
Inflationary monetary policy = Central banks create money and spend it, but don't create more goods.
Money is used to demand and consume more goods. Higher demand + lower supply = higher prices and less wealth.
Market clearing rate for interest = People save/invest money which means they save/invest resources.
Entrepreneurs use those resources to start projects that will complete and produce goods that consumers want when consumers want them.