I love your counter-parable. It does an awesome job of showing what massively complicated thing we are discussing. Land, money, consumables, exponentionables(your seeds), all have very different characteristics and drivers. Interest, investment, production, savings all are slightly different ways of talking about some of the same concepts.
I’m trying to get to the bottom of this statement and am having some issues:
The role of money is to make such long chains implicit; a positive real interest rate reflects that such chains are possible for most goods, and any exceptions will increase in price faster than interest accumulates.
Could you unpack it some more?
You can correct me where I’m wrong, but I think what you are getting at is that the current abstraction of money and the idea of interest paid for borrowing it is optimal enough to reward the people that put up the cash for the value that it creates? And if a good isn’t one of those exponential type things, the price just keeps going up faster than the interest rate because of its implicit limitedness?
Do you think RC would be more willing to make the more productive choice if he could benefit from all of the upside that lending the seeds produces or only the amount that is agreed upon? I think what I’m trying to get at with hypercapitalism is that we want RC to seek out the best use today instead of the best use tomorrow because if he waits until tomorrow all the work that could have happened to day can never be redone.
You can’t plant a pie and grow two pies, and in fact it will go bad quickly, but you might be able to trade the pie for seeds, grow them, and reap enough to trade for two pies. If no one with seeds wants a pie, you might have to make a chain of trades, e.g.trade the pie to the cobbler for shoes and trade the shoes for seeds.
Even if you don’t want to grow seeds yourself, you might trade the pie for farm tools, then trade those to the farmer in exchange for seeds at harvest, then trade the seeds for more pies.
Now it’s not guaranteed that these sets of trades are possible. It could turn out that the best deals you can get will leave you with half a pie at the end. But usually, if some goods can be used to make more goods, and baking pies isn’t going to get any harder in the future, exchanging pie today for pie tomorrow will get you more pie.
Money and financial institutions abstract trade chains away, so you can sell your pie, put the money in the bank, they’ll make loans to people who can pay back more in the future, pay you interest, and then you can buy more pie. The interest isn’t a distortion caused by money; it reflects a possible set of trades that might not be obvious but would be possible. If such a set of trades doesn’t exist, you won’t have positive real interest (real interest is the published interest rate minus inflation).
If you give all of the upside of the loan to RC there’s nothing left for the stranger and no reason for him to bother. If they’re able to negotiate an interest rate, they’ll find a deal that works for both of them. An equity arrangement where RC gets a defined percentage of the stranger’s harvest instead of a fixed amount of grain is also something they could negotiate in traditional capitalism, if such a deal were preferable to both parties.
I love your counter-parable. It does an awesome job of showing what massively complicated thing we are discussing. Land, money, consumables, exponentionables(your seeds), all have very different characteristics and drivers. Interest, investment, production, savings all are slightly different ways of talking about some of the same concepts.
I’m trying to get to the bottom of this statement and am having some issues:
Could you unpack it some more?
You can correct me where I’m wrong, but I think what you are getting at is that the current abstraction of money and the idea of interest paid for borrowing it is optimal enough to reward the people that put up the cash for the value that it creates? And if a good isn’t one of those exponential type things, the price just keeps going up faster than the interest rate because of its implicit limitedness?
Do you think RC would be more willing to make the more productive choice if he could benefit from all of the upside that lending the seeds produces or only the amount that is agreed upon? I think what I’m trying to get at with hypercapitalism is that we want RC to seek out the best use today instead of the best use tomorrow because if he waits until tomorrow all the work that could have happened to day can never be redone.
You can’t plant a pie and grow two pies, and in fact it will go bad quickly, but you might be able to trade the pie for seeds, grow them, and reap enough to trade for two pies. If no one with seeds wants a pie, you might have to make a chain of trades, e.g.trade the pie to the cobbler for shoes and trade the shoes for seeds.
Even if you don’t want to grow seeds yourself, you might trade the pie for farm tools, then trade those to the farmer in exchange for seeds at harvest, then trade the seeds for more pies.
Now it’s not guaranteed that these sets of trades are possible. It could turn out that the best deals you can get will leave you with half a pie at the end. But usually, if some goods can be used to make more goods, and baking pies isn’t going to get any harder in the future, exchanging pie today for pie tomorrow will get you more pie.
Money and financial institutions abstract trade chains away, so you can sell your pie, put the money in the bank, they’ll make loans to people who can pay back more in the future, pay you interest, and then you can buy more pie. The interest isn’t a distortion caused by money; it reflects a possible set of trades that might not be obvious but would be possible. If such a set of trades doesn’t exist, you won’t have positive real interest (real interest is the published interest rate minus inflation).
If you give all of the upside of the loan to RC there’s nothing left for the stranger and no reason for him to bother. If they’re able to negotiate an interest rate, they’ll find a deal that works for both of them. An equity arrangement where RC gets a defined percentage of the stranger’s harvest instead of a fixed amount of grain is also something they could negotiate in traditional capitalism, if such a deal were preferable to both parties.