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Daniel O'Connor
Bainbridge Island, WA, USA
Recent Activity
I recently published an expanded second edition of my book, Awareness-in-Action: A Critical Integralism for the Challenges of Our Time, a free copy of which can be downloaded here. Continue reading
Posted Jun 8, 2013 at Catallaxis
I began writing this compact book four years ago as a brief digression at the beginning of an article on my particular formulation of integral economics, wherein I thought it might be appropriate to clarify what I meant by the integral that I was using to reconstruct this economics. That article was being written for an academic audience at the First Biennial Integral Theory Conference, so my digression to explicate the critical integral praxis that had long resided inchoate, in the back of my mind, was written in a formal academic style. Two years after that first draft of an article, which was incompletely satisfying enough to encourage further effort, I began writing once again during intermittent pockets of time... Continue reading
Posted Mar 17, 2012 at Catallaxis
This past week brought the release of the second in what I hope will be a continuing series of educational music videos from EconStories, the creative collaboration between John Papola of Emergent Order and Russ Roberts of George Mason University. Both of these music videos are brilliantly written, directed, and performed in order to present the basic Keynesian and Hayekian perspectives on the boom-bust cycle still poorly taught in most universities and completely ignored by the mainstream television news. Continue reading
Posted May 2, 2011 at Catallaxis
Thanks for bringing this to my attention, as I hadn’t seen it until now. Murphy is not critiquing my whole thesis and makes no reference to it, although he is critiquing a similar thesis that overlaps mine while including some elements not found in mine. So let’s take a look at his proof in its entirety: "Suppose there are two neighbors living in a community that uses actual gold coins as its money. Mr. Smith starts out with 1,000 gold coins, while his neighbor Mr. Brown starts out with none. Brown asks Smith if he can borrow 100 gold coins for a month. Smith agrees, but insists on a 12.7 percent APR, which works out to 1 percent interest charged monthly. So on day one of this deal, Smith has 900 gold coins while Brown has 100. At the end of the month, after whatever buying and selling he has done with the rest of the community, Brown has accumulated 100 gold coins in his possession. He pays that back to Smith. Ah, but Brown is still short 1 gold coin. So he offers to cut Smith's lawn and paint his fence (with materials provided by Smith). In return for this labor, Smith pays Brown 1 gold coin, which Brown then uses to pay off his interest. In the following month, Brown repeats the process: He borrows 100 gold coins up front, pays them back at the end of the month, and performs 1 gold coin worth of labor to earn the money to pay off the interest. Eventually, Brown and Smith simplify things. They constantly roll over the 100 gold coins of principal, and Brown performs a day's worth of chores once a month for Smith as the "servicing charges" on the loan. As this simple example illustrates, a fixed stock of money can "turn over" several times a given calendar period, and thus provide the means with which to pay back a higher volume of loans. Even in a community with a fixed stock of money — picture people using gold where no new gold is being mined — the capitalists can charge positive interest rates, without necessarily forcing anyone to default." While that simplified model of a lending process using a fixed supply of commodity money is certainly logical, it does not appear to disprove the thesis that Murphy has set up in the beginning of his article, much less what I have presented in my article. Think about it for a few minutes. What does that model do to undermine what I’ve presented in my article? A logical proof should be self-evident and it’s the responsibility of the person presenting the critique to offer such a proof in relation to direct quotes from the work being critiqued. It’s more than a little tedious to have to demonstrate that his purported demonstration of the error in a thesis similar to mine is not what it appears to be. But because I want this to be clear to everyone who reads this, I will make the additional effort. In a debt-based monetary system, the 100 currency units being lent by Smith to Brown would not be gold coins from a pre-existing supply, but new currency units lent into existence on the basis of small fractional reserves of currency units previously lent into existence on the basis of small fractional reserves of currency units regressing all the way back to some original supply of currency units that were actually units of physical gold. So let’s call these currency units dollars (which isn’t so strange, because dollars used to be defined as a specific weight of gold) and let’s ignore the extremely small original reserves to which we might trace these new dollars and just treat these new dollars, all 100 of them, as newly created through the act of lending from Smith to Brown. Immediately after the loan is made, the total supply of debt-based money owned by Smith and Brown together is $1,000 + $100 = $1,100. At the end of the month, Brown pays back the $100 principal amount of the loan, which extinguishes that new supply of money, but fails to pay the $1 interest fee. In Murphy’s story, Smith is a very accommodating lender who agrees to hire Brown to earn a wage of $1 so that he can pay his interest. Given that Smith has $1,000, he has no trouble paying this $1 to Brown and then getting it right back a moment later. Then the cycle is repeated, ad infinitum, with the loan being rolled over and interest being earned through Brown’s labor for Smith. Now, expand the frame to encompass the entire monetary system by recognizing Smith as all lenders in aggregate and Brown as all borrowers in aggregate. They are, in a sense, two classes of citizens: one has the government-granted right to lend money into existence for a profit and the other has the government-mandated responsibility to borrow that money into existence for a cost. When all the Browns in the economy show up at the end of the month and attempt to service their debts, there really is a $1 short-fall in the aggregate supply of money needed to pay that aggregate interest. Sure, some of the Browns are fortunate enough to get hired by the Smiths, working in the banks to make a government-guaranteed salary more than sufficient to pay their interest when it comes due. Other Browns employed elsewhere will be just barely able to scrape together the interest they need when it comes due. But with the Banker Browns having a surplus called saving and the Servicer Browns breaking even, the third group of Browns are left without enough money to pay their interest. Some of these Browns are able to borrow more from the Smiths in order to service their pre-existing loans, but this adds to their debt service every month and of course their interest rates will creep higher as they become sub-prime borrowers and eventually they will not be allowed to borrow any more. The fourth class of Browns cannot borrow any more to service their existing loans because no Smith will lend to them. Then the Banker Smiths will deploy the Banker Browns to confiscate the Defaulter Browns’ property used to collateralize the loans. This is messy but highly profitable for the Banker Smiths, because they get a share of property worth $100, plus or minus depending on the timing of the default, for the cost of a few months interest lost, let’s say an equal share of $6, plus the cost of paying a banker Brown a month’s salary, an equal share of $1, to execute the process. That’s a very simplified version of the highly profitable, government-mandated, fractional-reserve banking business model. It’s good work, if you can get it. It is also a disturbing illustration of the multiple classes of people in our economy (not to mention those who could not get a direct loan in the first place) created by the design of our debt-based monetary system. Standard socio-economic classification has always been done on basis of the color of your shirt (white or blue) or the color of your skin, but it is more than a little revealing to classify on the basis of where people stand in the debt-based monetary system. But, I digress. Anyway, the only way to make sure we’re including all the Smiths and Browns is to frame the entire monetary system as a whole and recognize that today’s aggregate debt balance will require more money to service in the future—principal and interest—than would be required to pay it all off today—principal-only. This net increase in money will have to be lent into existence, thereby creating still more debt, which in turn requires still more lending of money into existence for future interest payments, ad infinitum. This fact is so simple that it does indeed repel the minds of even very smart economists like Murphy. That said, I don’t claim that everything in my article is perfectly correct and I am open to the possibility of being proven wrong. But I’m pretty sure Murphy’s model does not constitute a disproof of what I’ve presented. If you think otherwise, then please educate me.
1 reply
Thanks Michael
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With the US economy caught in a system-wide debt trap rooted in the design of its currency, our economic future is contingent upon the policy decisions currently being made by US monetary authorities and their international counterparts. An inquiry into the primary monetary policy uncertainties yields a set of diverse, yet complementary scenarios for our immediate future. These scenarios provide an interpretive framework for strategic decision making by entrepreneurs and executives, investors and consumers, citizens and activists. Continue reading
Posted Apr 10, 2011 at Catallaxis