The Issue that will doom the R3VOLUTION

Here's a thread from last June in the Ludwig von Mises forums where someone asked about this "Mathematically Perfected Economy", and the founder himself, Mike Montagne, tries (and fails) to argue his points.

http://mises.org/Community/forums/t/2660.aspx?PageIndex=1

I wonder if the people that designed the http://www.perfecteconomy.com/ website purposefully made it horrible on the eyes so people wouldn't look into their flawed "usury is bad" ideas too hard, and just blindly trust that they're right...

Well, there's a lot of comments on this thread, and it would take a lot of time to see if someone already pointed out that the idea that interest is bad economically is false.

First, I'll point out that the definition of "usury", according to the list of definitions provided by google, means "excessive interest", or "illegal interest", not simply "interest". In a free market, attempts at charging excessive fail, because other competitors will charge lower interest and therefore people will borrow from them instead of those charging the higher rates.

Now on to the economic consequences of charging interest.

The popular idea that charging interest leads to perpetual debt is a myth that I think was created by the Chicago school of economics (but don't quote me on that). It is severely flawed. The only way that it could be true is if people for some reason were not producing and trading, and therefore could not pay back their loan, and would have to borrow a larger amount to pay back the first loan+interest.

Since people do produce and trade, wealth is created and trade for money, which can be used to pay off debt and interest. Even the lenders have expenses which they have to pay from the interest they earn on their money lent out to others. These expenses include labor, utilities, office supplies, construction, etc. This means that as they earn money from interest, some of it goes right back to other people, but it is no longer debt.

Here is an explanation of how this works (from the Ludwig von Mises forums). In the example, someone lends money and charges interest. The borrower is able to pay back the entire loan with the interest. The money supply never increases or decrease. All debts are paid off. Plus new wealth has been created.

One of the flaws in the usury/perpetually increasing debt argument is the inconsistency in the recognition of time. If I borrow $100 from you at 10% interest, and then you want me to pay it back right away, I will either default on the loan, or will need to borrow more money, $110 (presumably at 10% again), to pay you back. Then if you wanted that back right away, I would have to borrow $121 with interest, and on and on. This does not occur in reality. Money is lent out with an expectation that it will not be returned right away, or before it was used for whatever reason the borrower wanted to use it for. People don't borrow money just to borrow money. They borrow it to trade it for something else. People don't lend out money to people they don't think will pay them back (unless it's a case where the government will cover it if the borrower doesn't pay it back).

• Lenders lend money to people that will likely pay them back.
• Borrowers borrow money to spend it on something.
• Borrowers are people that are producing wealth to trade for money, some of which goes to paying back the loan with interest.
• Lenders have expenses that takes it's earnings from interest and puts it right back into the economy, when then ends up in the hands of the borrowers.

Interest has no negative economic consequences. In fact, abolishing interest would have negative economics consequences. Less money would be available for lending without government forcing the lending to occur.

Lending money is very much like lending any other type of property for a fee. If you're not using it, but someone else can use it, why not lend it to them so it's being put to productive uses, and why not charge a fee for someone using your property?

The only moral issue I see with charging interest on a loan if in a situation where someone close to you (family, close friends) needs financial help. I think the Bible touches on this situation and says it's wrong to charge interest, or maybe just wrong to charge excessive interest, as in taking advantage of, or using, a "brother in need".

"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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the web page looks very unorganized to me. Where should I begin? I really enjoyed the introduction/summary that was given by DrKrbyLuv. Where do I find something like that? I want to start from there.

I am a fan of Mike Montagne's website - he has much to offer and I have learned a great deal from him.

My understanding of Mike's argument is the inconvenient fact that all liquidity must be borrowed into our current system. This liquidity becomes the "principle" in a constant stream of debt. The problem is that the "interest" that must be paid is never created - the loans must eventually fail.

Each year, enough new liquidity must be created simply to service the principle and debt on existing loans. Eventually, this amount grows at an exponential rate until it consumes all new debt liquidity - thus we hit a mathematical brick wall and the economy collapses.

We are at this point and Mike's explanation of a term he coined "artificial sustention" alone is well worth the visit. Many things occurring today are explained by this phenomenon.

There is no doubt that what he says about the destructive force interest. This basic premise is also explained by the "Money as Debt" video and in Chris Martenson's "Crash Course" - http://www.chrismartenson.com/crashcourse

Mike has gone beyond the realization that the system must fail by design to actually patenting a system that solves the problem. First, he suggests that all interest-usury be stopped. The he suggests that the economy can be maintained in balance via his applied formulas.

At first, I objected to the fact that his system requires control, after all, control is the big difference between free capitalism and socialism/communism. If you look at his system and allow some state control, it sure looks viable.

I agree that his system needs looked at closely because even if you are a pure Austrian economist, you have to wonder if there is enough gold in the US to back a currency. Sad to say, but Fort Knox is a well secured cavern for spider nesting. Almost all of the gold is gone - stolen.

Can a banking system survive without interest? Yes, its done by Muslim banks who adhere to Sharia law. Instead of interest, the banks profit by fees and in the case of a mortgage, rent is paid in lieu of interest which saves a ton of money.

Hopefully others will visit his site and comment. If we are sincere in wanting change, I think it is our responsibility to offer alternatives.

gold standard cannot "save us from perpetual multiplication of debt by interest".

True. What will, however, is for banks and speculative bank depositors (i.e. those making interest off of it, not checking account holders) to eat the cost of defaults and bank failure. FDIC should not be insuring anything, except, *maybe* checking accounts. But in reality, the banks should pay those out first.

"can it sustain prosperity exceeding relatively minuscule monetary reserves"

"students of the monetary gold situation are aware we probably don't even have the gold some of us we think we do"

Nonsense. All that has to happen, to fix this, then, is for the price of gold to go up.

"not only is there no binding linkage between the value of a purported precious metal monetary standard and the value of a circulation and prosperity limited to monetary reserves; the limited circulation itself therefore manipulates the value and availability of money (which thus must manifest in disadvantage or obstruction of prosperity); and"

Correct. It is congress' responsibility to set the price of currency metal relative to the monetary unit. Should they change it, and people get pissed off, then you vote out the idiots that changed it.

"the historically demonstrated encumbrance of the limited circulation is not only demonstrated and demonstrable, the calamities imposed by this defect have thus already served well as a principal argument to abandon the encumbrances of the faulty standard."

The encumbrance has only been upon the power of the government. Whenever the standards have been usurped, it has been for the benefit of those in power, who in the modern era of representative government have had to resort to crafting poorly conceived economic systems during crisis to unyoke the economy from the coin.