Thursday, January 20, 2011

More on Real Bills, with Ingo Bischoff

I will encourage all to visit the comments by Ingo Bischoff at the subject article, beginning at: Posted by Ingo Bischoff on 1/19/2011 1:56:59 AM.

The article can be found at:

Following is my reply to Mr. Bischoff's post at: Ingo Bischoff on 1/19/2011 10:31:07 PM. I encourage that his post is read in its entirety.

@Ingo Bischoff

I thank you again for your diligent and detailed comments in this dialogue. You offer a wonderful example of the positive aspects of such forums.

1-3: I believe I haven't been clear in my use of the term “saved consumption good.” I am not speaking of milled flour being “saved” to deliver to the baker. I am speaking of (in this example) bread, not milled flour. There can be no production of milled flour without there first being a savings of previously produced bread. The miller must eat while he is milling. The baker must eat while he is baking. Neither is living on the bread that is yet to be produced. The previous “savings” of milled flour is not edible to the producer of bread while the producer of bread is producing bread. The producer of milled flour cannot produce milled flour without the savings of previously produced and saved bread.

There must be savings in the form of goods immediately ready for consumption for there to be further production of consumption goods. To have time to produce, one must have access to bread in the meantime.

4: “In the absence of Real Bills, all steps in the production of a consumption item would have to be financed by savings.”

But all steps in the production of ANY good requires savings, and must be “financed” by savings. The miller must have access to previously saved bread to sustain his life in order to attend to the task of milling. The baker must have access to previously saved bread for the same reason. Real Bills cannot provide the bread for sustenance during the production of bread if the bread doesn’t exist as savings.

5: Please see my comments to 1-4 above. I do not hold this position due to my growing up under Fed central banking, Keynes, or Friedman. I hold these positions because I know if I am to spend time milling, I must in the meantime rely on previously saved bread to live. It is a question of needing to eat while I work on something I cannot immediately eat. It is not due to any supposed mis-guided economic ideology.

6: By your own statements, I can conclude this is inflation. You state that “In the absence of Real Bills, all steps in the production of a consumption item would have to be financed by savings.” The problem is ALL steps MUST be financed by savings. Real Bills cannot change this fact. Your statement indicates that Real Bills offers credit (not in the legal sense, but in an economic sense: meaning accepting deferment of an immediately consumable good in trade for my output) absent savings. This is inflation. It is the same as the actions practiced by central banks. They also offer credit absent savings.

Posted by Bionic Mosquito on 1/21/2011 11:32:51 AM

@Ingo Bischoff

Thank you for the understandable example. I will only add that every participant in the chain (the owner of the granary, the miller, the baker) must also have savings (or access to savings) in order for production of bread to occur. There must be savings (in the form of consumption goods previously produced but not consumed) in order to provide credit (commercial or otherwise) to fund the production that serves consumption. Absent savings, the credit is inflation.

I return to Dr. Fekete's statement: "I made the central point that the source of commercial credit is not saving but consumption." I have attempted to gain clarification on this many times before (I apologize, as I don't recall if I had this discussion with you in addition to others).

The terms used by Dr. Fekete must have meanings different than I understand and different than what I can glean from your example. Or his theory is different than your theory, or I can not grasp the nuance, or ???

In any case, I feel as if we are now talking in circles. I am satisfied that I understand your explanation. However, if Dr. Fekete again emphasizes this statement in an editorial at DB, I will again raise my question.

Posted by Bionic Mosquito on 1/21/2011 12:43:00 PM

@Ingo Bischoff

Respectfully, Dr. Fekete did not say: I made the central point that the INCENTIVE TO PROVIDE commercial credit is not saving but consumption.

Such a statement would fit in with your explanation. And it would be somewhat understandable.

I will quote him again: “I made the central point that the source of commercial credit is not saving but consumption."

He made "THE CENTRAL POINT" that the "SOURCE" of commercial credit is not saving but consumption. This is a combination of Ellen Brown and central banking. I will not repeat again all of the reasons I conclude this. It is so.

The more I hear statements trying to explain away this seeming impossibility of his “central point”, the more I conclude it is a wrong statement. With his “central point” he is, in fact, advocating inflation as the source of wealth creation.

Posted by Bionic Mosquito on 1/21/2011 3:05:46 PM

@Ingo Bischoff

The key word is "source". Dr. Fekete must be using this in a manner I do not understand, and a manner different than its conventional meaning. In the manner I understand the term, and in its conventional meaning, I conclude real bills, via monetary inflation, facilitate production. His own statement (and statements you have made) only confirm this for me.

There is a difference in my statement and Dr. Fekete's. Source does not mean "incentive to provide." I do not know how to explain it differently.

Ellen Brown defines the source of credit as a claim on future production (to the extent she even has an answer, as her comments to Schiff demonstrated her confusion more than anything else). This is, of course, wrong. This is the similarity in a nutshell.

In any case, we have gone in circles, and I have taken up too much of your time. My point is not to convince you, as I am sure that will not happen in any case. My point is to try to gain clarity myself as to real bills and inflation, and secondly to put the conversation in a public forum such that others can draw their own conclusion. In this, I think enough has been done on this thread and on this aspect of real bills.

I thank you again.

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