This thread presents fundamentals of economics from a White perspective and aims at dispelling globalistic capitalist myths and propaganda.

This series of posts is explaining why the paper money system is an abomination, and why honest commodity money system is a superior alternative, and would be followed by the second one, explaining how fraction reserve banking system profiteers from usury and steals the fruits of common man’s labor out oh him, and how honest banking works.

Let’s suppose there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 silver cents, each ax takes 4 hours of work to be manufactured and sells for 20 silver cents. Everyone works 50 hours a week, so Jack’s Foods produce (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 silver dollars, and pays Sam 1,25*40%=50 silver cents a week; and Mike’s Instruments produce [50/4]+[50/4]=24 axes worth 24*0,2=4,80 silver dollar, and pays Adrian 2,40*40%=96 silver cents. Everyone saves 20% of gross incomes.

Suppose someone invented a new technology, that allows an ax to be produced in 2 hours, and good weather triple the average harvest. So Jack’s foods now produces 50*3=150 units of food and Mike’s instruments produces [50/2]+[50/2]=50 axes. The amount of silver in circulation is fixed, and can grow only slightly, by appr, 5%, so the prices of a unit of wheat have to fall to [(100%+5%)(50/150)*0,05]=2 silver cents, and the prices of a unit of ax have to fall to [(100%+5%)(24/50)*0,2]=11 cents. Jack’s Foods earned 150*0.02=3 silver dollars, Mike’s instruments earned 50*0,11=5,50 silver dollar. Let’s see who wins and who loses from fall in prices:

Jack earned 2,50-0,5=2 silver dollars before price fall, on which, after saving 2,00*20%=40 silver cents, he could buy 1,60:0,05=32 units of wheat or 1,60:0,20=8 units of ax. Jack earned 3-0,5=2,50 silver dollars after the price fall, on which after saving 2,50*20%=50 silver cents, he could buy 2,50:0,02=125 units of wheat or [2,50:0,11]=22 axes. His savings were worth 0,40:0,05=8 units of wheat or 0,40:0,20=2 units of axes, now they are worth 0,40+0,50=0,90:0,02=45 units of wheat or [0,90:0,11]=8 units of axes. In real terms he became richer by (125+45)/(32+8)=425% in terms of wheat or (22+8)/(8+2)=300% in terms of axes.

Sam earned 50 silver cents before price fall, on which, after saving 0,50*20%=10 silver cents, he could buy 0,40:0,05=8 units of wheat or 0,40:0,20=2 units of ax. Sam earned 50 silver cents after the price fall, on which after saving 0,50*20%=10 silver cents, he could buy 0,40:0,02=20 units of wheat or [0,40:0,11]=3 axes. His savings were worth 0,1 0:0,05=2 units of wheat or [0,10:0,20]=0 unit of axes, now they are worth 0,10+0,10=0,20:0,02=10 units of wheat or [0,20:0,11]=1 unit of axes. In real terms he became richer by (20+10)/(8+2)=300% in terms of wheat or (3+1)/(2+0)=200% in terms of axes.

Mike earned 4,80-0,96=3,84 silver dollars before price fall, on which, after saving [3,84*20%]=76 silver cents, he could buy [3,08:0,05]=61 units of wheat or [3,08:0,20]=15 units of ax. Jack earned 5,50-0,96=4,54 silver dollars after the price fall, on which after saving 4,54*20%=0,90 silver cents, he could buy 3,64:0,02=182 units of wheat or [3,64:0,11]=33 axes. His savings were worth [0,76:0,05]=15 units of wheat or [0,76:0,20]=3 units of axes, now they are worth 0,76+0,90=1,66:0,02=83 units of wheat or [1,66:0,11]=15 units of axes. In real terms he became richer by (182+83)/(61+15)=348% in terms of wheat or (33+15)/(15+3)=266% in terms of axes.

Adrian earned 96 silver cents before price fall, on which, after saving 0,96*20%=19 silver cents, he could buy [0,77:0,05]=15 units of wheat or [0,77:0,20]=3 units of ax. Adrian earned 96 silver cents after the price fall, on which after saving 0,96*20%=19 silver cents, he could buy [0,77:0,02]=38 units of wheat or [0,77:0,11]=7 axes. His savings were worth [0,19:0,05]=3 units of wheat or [0,19:0,20]=0 unit of axes, now they are worth 0,19+0,19=0,38:0,02=19 units of wheat or [0,38:0,11]=3 unit of axes. In real terms he became richer by (38+19)/(15+3)=316% in terms of wheat or (7+3)/(3+0)=333% in terms of axes.

Who of productive workers and business men wins after the price fall, caused by increased productivity? Everyone. Who of productive workers and business men loses after the price fall, caused by increased productivity? None. Under honest commodity money, deflation is norm: prices fall, wages stay about the same, and people savings are worth tomorrow more than today, people to rise out of poverty and grow rich fast. No wonder, in the 19th century with its honest commodity money system everywhere, one third of the populace belong to the middle class, instead of one sixth in the 20th century, with its paper money abomination, an despite enormous government welfare available.

Tomorrow the reader will know, what happens under honest commodity money in times of industrial revolution, when productivity rises by double digit numbers.

Today's post will focus on the issues of technological change and rapid increases in productivity, and their consequences under honest commodity money system:

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 silver cents, each ax takes 4 hours of work to be manufactured and sells for 20 silver cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 silver dollars, and pays Sam 1,25*40%=50 silver cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 silver dollar, and pays Adrian 2,40*40%=96 silver cents. Everyone saves 20% of gross incomes and have the following savings: Jack - 90 silver cents, Sam - 20 silver cents, Mike - 1,66 silver dollars, Adrian - 38 silver cents.

Suppose the industrial revolution resulted in an new and improved tractors to be invented, which allow one unit of wheat to be grown in 15 minutes instead of two hours, and a newly discovered energy source allowed for making a machine that produces an ax each 20 minutes. Let's suppose also that the marketplace does not need more than 300 units of wheat and 200 axes annually. So Jack’s foods now produces (50*4)+(50*4)=400 units of wheat and Mike’s instruments produces [50*3]+[50*3]=300 axes. The amount of silver in circulation is fixed, and can grow only slightly, by appr, 5%, so the prices of a unit of wheat have to fall to [(100%+5%)(50/300)*0,05]=0,9 silver cents, and the prices of a unit of ax have to fall to [(100%+5%)(24/200)*0,2]=1,5 silver cents. Jack’s Foods earned 300*0.009=2,7 silver dollars, Mike’s instruments earned 200*0,015=3 silver dollar. Let’s see who wins and who loses from fall in prices:

Jack earned 2,50-0,5=2 silver dollars before price fall, on which, after saving 2,00*20%=40 silver cents, he could buy 1,60:0,05=32 units of wheat or 1,60:0,20=8 units of ax. Jack earned 2,70-0,50=2,20 silver dollars after the price fall, on which after saving 2,20*20%=44 silver cents, he could buy [2,20:0,009]=244 units of wheat or [2,20:0,015]=146 axes. His savings were worth 0,90:0,05=18 units of wheat or [0,90:0,20]=4 units of axes, now they are worth 0,90+0,44=[1,34:0,009]=148 units of wheat or [1,34:0,015]=89 units of axes. In real terms he became richer by (244+148)/(32+18)=784% in terms of wheat or (146+89)/(8+4)=1958% in terms of axes.

Sam earned 50 silver cents before price fall, on which, after saving 0,50*20%=10 silver cents, he could buy 0,40:0,05=8 units of wheat or 0,40:0,20=2 units of ax. Sam earned 50 silver cents after the price fall, on which after saving 0,50*20%=10 silver cents, he could buy [0,40:0,009]=44 units of wheat or [0,40:0,015]=26 axes. His savings were worth 0,20:0,05=4 units of wheat or [0,20:0,20]=1 unit of axes, now they are worth 0,20+0,10=[0,30:0,009]=33 units of wheat or [0,30:0,015]=20 unit of axes. In real terms he became richer by (44+33)/(8+2)=770% in terms of wheat or (26+20)/(2+0)=2300% in terms of axes.

Mike earned 4,80-0,96=3,84 silver dollars before price fall, on which, after saving [3,84*20%]=76 silver cents, he could buy [3,08:0,05]=61 units of wheat or [3,08:0,20]=15 units of ax. Jack earned 3,00-0,96=2,04 silver dollars after the price fall, on which after saving [2,04*20%]=0,40 silver cents, he could buy 1,64:0,009=182 units of wheat or [1,64:0,015]=109 axes. His savings were worth [0,76:0,05]=15 units of wheat or [0,76:0,20]=3 units of axes, now they are worth 1,66+0,40=[2,06:0,009]=228 units of wheat or [2,06:0,015]=137 units of axes. In real terms he became richer by (182+228)/(61+15)=539% in terms of wheat or (109+137)/(15+3)=1366% in terms of axes.

Adrian earned 96 silver cents before price fall, on which, after saving 0,96*20%=19 silver cents, he could buy [0,77:0,05]=15 units of wheat or [0,77:0,20]=3 units of ax. Adrian earned 96 silver cents after the price fall, on which after saving 0,96*20%=19 silver cents, he could buy [0,77:0,009]=85 units of wheat or [0,77:0,015]=51 axes. His savings were worth [0,19:0,05]=3 units of wheat or [0,19:0,20]=0 unit of axes, now they are worth 0,38+0,19=[0,57:0,009]=63 units of wheat or [0,57:0,015]=38 unit of axes. In real terms he became richer by (85+63)/(15+3)=822% in terms of wheat or (51+38)/(3+0)=2966% in terms of axes.

Now there are two practical questions. First, when price go below 1 cent per item, there arises a need for new denominations of money to serve it. Second, satisfaction of customer needs reduces demand for labor. What happens under honest commodity money system?

The answer to first question is simple - the dollar is divided in a higher number of decimals, say 1000 cents instead of 100 cents. Yet because under the commodity money system the commodity parity of the dollar remains the same, the savings keep value no matter what the denominations are, e.g. Jack savings would be 1 silver dollar and 340 silver cents instead of 1 silver dollar and 34 silver cents, Sam savings would be 300 silver cents instead of 30 silver cents, Mike savings would be 2 silver dollar and 60 silver cents instead of 2 silver dollar and 6 silver cents, and Adrian savings would be 570 silver cents instead of 38 silver cents.

The answer to the second question would be that productivity increases bring about reduction in work time, coupled with decrease of the nominal wages, and increase of the real wages. In this case Sam would have to work 50*(300:400)=37,5 hours and would earn (37,5/50)*50=37,5 silver cents, yet his real wage would be [37,5:0,9]: (50:5)=416% higher in term of wheat and [37,5:1,5]:[50:20]=1250% higher in terms in axes; Adrian would have to work [50*200/300]=33 hours and would earn 96*200/300 =63,3 silver cents, yet his real wage would be [63,3:0,9]:[0,96;0,05]=370% higher in terms of wheat and [63,3:1,5]:[96;20]=1055% higher in terms of axes.

Who of productive workers and business men wins after the price fall, caused by double digits increases in productivity, caused by industrial revolution? Everyone, greatly. Who of productive workers and business men loses after the price fall, caused by increased productivity? None. Under honest commodity money, industrial revolution brings about reduction in working hours coupled with greatly increased salaries. No wonder, in the end of 19th century with its honest commodity money system everywhere, people worked on average 40-50 hours instead of 70-80 hours at the beginning of the 19th century, and the wages of the single, often illiterate, worker were higher enough to allow for rent and eventual purchase of a family house and upkeep of a large at least 6-8 children family. In the end of the 20th century, with its paper money abomination, both parents are college educated, and therefore much more productive, and both work the same 40-50 hours a week, yet their combined salaries are barely enough to keep 1-2 children family, and they are slaves of the bank for 30-40 years for their much smaller houses.

Tomorrow, the reader will know, what is happening, when the local politicians and financiers form a bank, issuing non-inflationary paper currency.

Today's post will focus on the consequences of introduction of non - inflationary paper money, instead of honest commodity money:

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 silver cents, each ax takes 4 hours of work to be manufactured and sells for 20 silver cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 silver dollars, and pays Sam 1,25*40%=50 silver cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 silver dollar, and pays Adrian 2,40*40%=96 silver cents. Everyone saves 20% of gross incomes and have the following savings: Jack – 1 silver dollar and 34 silver cents, Sam - 30 silver cents, Mike - 2,06 silver dollars, Adrian - 57 silver cents.

Suppose the local politicians and financiers decided to create a bank issuing non – inflationary paper currency. They offer everyone their new paper money in exchange for silver money, and are even ready to pay a 3% annual interest on all paper money they issue. People decided that the new paper money is more convenient and profitable than the old one, and permanently switched to paper money.

Let’s return to the first example. Suppose someone invented a new technology, that allows an ax to be produced in 2 hours, and good weather triple the average harvest. So Jack’s foods now produces 50*3=150 units of food and Mike’s instruments produces [50/2]+[50/2]=50 axes. Now the amount of paper money can be easily adjusted, so the bank issues ((150-50)*0,05=5 (50-24)*0,2=5,20)=10,20 paper dollars, and the prices remain the same. Jack’s Foods earned 150*0.05=4,5 paper dollars, Mike’s instruments earned 50*0,2=10 paper dollars. Let’s see who wins and who loses from the so-called stable prices:

Jack earned 2,50-0,5=2 silver dollars before the productivity increase, on which, after saving 2,00*20%=40 silver cents, he could buy 1,60:0,05=32 units of wheat or 1,60:0,20=8 units of ax. Jack earned 4,50-0,50=4,00 paper dollars after the productivity increase, on which after saving 4,00*20%=80 paper cents, he could buy [3,20:0,05]=64 units of wheat or [3,20:0,20]=16 axes. His savings were worth [1,34:0,05]=26 units of wheat or [1,34:0,20]=4 units of axes, now they are worth (1,34*1,03)+0,8=[2,18:0,05]=43 units of wheat or [2,18:0,2]=10 units of axes. Thus under paper money system, in real terms Jack became richer by (64+43)/(32+26)=184% in terms of wheat or (16+20)/(8+10)=200% in terms of axes. Yet under honest commodity money system, in real terms, Jack became richer by (125+45)/(32+8)=425% in terms of wheat or (22+8)/(8+2)=300% in terms of axes. So Jack’s net loss of wealth from the introduction of non – inflationary paper money is [(184-425)/425]=56% in terms of wheat and [(200-300)/200]=50% in terms of axes.

Sam earned 50 silver cents before the productivity increase, on which, after saving 0,50*20%=10 silver cents, he could buy 0,40:0,05=8 units of wheat or 0,40:0,20=2 units of ax. Sam earned 50 paper cents after the productivity increase, on which after saving 0,50*20%=10 paper cents, he could buy [0,40:0,05]=8 units of wheat or [0,40:0,20]=2 axes. His savings were worth 0,30:0,05=6 units of wheat or [0,30:0,20]=1 units of axes, now they are worth 0,30*1,03+0,10=[0,41:0,05]=8 units of wheat or [0,41:0,20]=2 unit of axes. Thus under paper money system, in real terms Sam became richer by (8+8)/(8+6)=114% in terms of wheat or (2+2)/(2+1)=133% in terms of axes. Yet under honest commodity monetary system, in real terms, Sam became richer by (20+10)/(8+2)=300% in terms of wheat or (3+1)/(2+0)=200% in terms of axes. So Sam’s net loss of wealth from the introduction of non – inflationary paper money is [(114-300)/300]=62% in terms of wheat and [(133-200)/200]=33,5% in terms of axes.

Mike earned 4,80-0,96=3,84 silver dollars before price fall, on which, after saving [3,84*20%]=76 silver cents, he could buy [3,08:0,05]=61 units of wheat or [3,08:0,20]=15 units of ax. Mike earned 10-0,96=9,04 paper dollars after the productivity increase, on which after saving [9,04*20%]=1,80 paper cents, he could buy [7,24:0,05]=144 units of wheat or [7,24:0,20]=36 axes. His savings were worth [2,06:0,05]=41 units of wheat or [2,06:0,20]=10 units of axes, now they are worth 2,06*1,03+1,80=[3,92:0,05]=78 units of wheat or [3,92:0,20]=19 units of axes. Thus under paper money system, in real terms Mike became richer by (144+78)/(61+41)=217% in terms of wheat or (36+19)/(15+10)=220% in terms of axes. Yet under honest commodity monetary system, in real terms, he became richer by (182+83)/(61+15)=348% in terms of wheat or (33+15)/(15+3)=266% in terms of axes. So Mike’s net loss of wealth from the introduction of non – inflationary paper money is [(217-348)/348]=37% in terms of wheat and [(220-266)/266]=17% in terms of axes.

Adrian earned 96 silver cents before the productivity increase, on which, after saving 0,96*20%=19 silver cents, he could buy [0,77:0,05]=15 units of wheat or [0,77:0,20]=3 axes. Adrian earned 96 paper cents after the productivity increase, on which after saving 0,96*20%=19 paper cents, he could buy [0,77:0,05]=15 units of wheat or [0,77:0,20]=3 axes. His savings were worth [0,57:0,05]=12 units of wheat or [0,57:0,20]=2 units of axes, now they are worth 0,57*1,03+0,19=[0,78:0,05]=15 units of wheat or [0,78:0,20]=3 unit of axes. Thus under paper money system, in real terms Adrian became richer by (15+15)/(15+12)=111% in terms of wheat or (3+3)/(3+2)=120% in terms of axes. Yet under honest commodity monetary system, in real terms, Adrian became richer by (38+19)/(15+3)=316% in terms of wheat or (7+3)/(3+0)=333% in terms of axes. So Adrian’s net loss of wealth from the introduction of non – inflationary paper money is [(111-316)/316]=64% in terms of wheat and [(120-333)/333]=64% in terms of axes.

The bank issued 10,20 paper dollars in new paper money. After paying ((2+1,34)+(0,50+0,30)+(3,84+2,06)+(0,94+0,57))*0,03=0,34 paper dollars in interest to the holders of its notes, it is left with 9,86 paper dollars to use as it wishes. Even after using a couple of dollars to pay for bribes to the friendly democratic politicians and charity PR events, it is still left with 7.86 paper dollars – its profits, made out of thine air.

Who of productive workers and business men wins after introduction of paper currency? No one, except the bank. Who of productive workers and business men loses after introduction of paper currency? Everyone, from 1/3 to 1/2 of the value of his gross income and savings from forgone deflationary price decreases, except for the bank, which makes huge profits out of thine air. Under the non-inflationary paper money system, prices remain the same, yet every productive worker and businessman looses part of the value of his gross income and savings from forgone deflationary price decreases. No wonder, both bankers and politicians like the paper money system, under which they go rich fast, at the expense of every productive member of society.

Tomorrow, the reader will know, what happened, when the bankers decided to inflate the currency.

Today's post will focus on the consequences of inflation under fiat monetary system:

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 paper cents, each ax takes 4 hours of work to be manufactured and sells for 20 paper cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 paper dollars, and pays Sam 1,25*40%=50 paper cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 paper dollar, and pays Adrian 2,40*40%=96 paper cents. Everyone saves 20% of gross incomes and have the following savings: Jack – 2,18 paper dollars, Sam - 41 paper cents, Mike - 3,92 paper dollars, Adrian - 78 paper cents.

Let’s return to the second example. Suppose the industrial revolution resulted in an new and improved tractors to be invented, which allow one unit of wheat to be grown in 15 minutes instead of two hours, and a newly discovered energy source allowed for making a machine that produces an ax each 20 minutes. Let's suppose also that the marketplace does not need more than 300 units of wheat and 200 axes annually. So Jack’s foods now produces (50*4)+(50*4)=400 units of wheat and Mike’s instruments produces [50*3]+[50*3]=300 axes. Yet, the bankers, decided to earn a bit more and to issue 71,55 paper dollars instead of (300-50)*0,05 +(200-24)*0,20=47,7 paper dollars, as in case of non - inflationary paper money, so the prices of a unit of wheat have to rise to (71,55/47,7)*5=7,5 paper cents, and the prices of a unit of ax have to rise to (71,55/47,7)*20=30 paper cents. Jack’s Foods earned 300*0,075=22,5 paper dollars, Mike’s instruments earned 200*0,3=60 paper dollars. Let’s see who wins and who loses from inflationary price increases:

Jack earned 2,50-0,5=2 paper dollars before inflationary price increase, on which, after saving 2,00*20%=40 paper cents, he could buy 1,60:0,05=32 units of wheat or 1,60:0,20=8 units of ax. Jack earned 22,50-0,50=22,00 paper dollars after the inflationary price increase, on which after saving 22,00*20%=4,40 paper dollars, he could buy [17,60:0,075]=234 units of wheat or [17,60:0,3]=58 axes. His savings were worth 2,18:0,05=43 units of wheat or [2,18:0,20]=10 units of axes, now they are worth 2,18+4,40=[6,58:0,075]=87 units of wheat or [6,58:0,3]=21 units of axes. Thus under inflationary paper money system, in real terms, Jack became richer by (234+87)/(32+43)=422% in terms of wheat or (58+21)/(8+10)=438% in terms of axes. Yet under honest commodity money system, in real terms, Jack became richer by (244+148)/(32+18)=784% in terms of wheat or (146+89)/(8+4)=1958% in terms of axes. So Jack’s net loss of wealth from the introduction of inflationary paper money is [(422-784)/784]=46% in terms of wheat and [(438-1958)/1958]=77% in terms of axes.

Sam earned 50 paper cents before inflationary price increase, on which, after saving 0,50*20%=10 paper cents, he could buy 0,40:0,05=8 units of wheat or 0,40:0,20=2 units of ax. Sam earned 50 paper cents after the inflationary price increase, on which after saving 0,50*20%=10 paper cents, he could buy [0,40:0,075]=5 units of wheat or [0,40:0,30]=1 ax. His savings were worth 0,41:0,05=8 units of wheat or [0,41:0,20]=2 units of axes, now they are worth 0,41+0,10=[0,51:0,075]=6 units of wheat or [0,51:0,3]=1 unit of axes. Thus under inflationary paper money system, in real terms, Sam became poorer by [(5+6)/(8+8)-100%]=31% in terms of wheat or ((1+1)/(2+2)-100%)=50% in terms of axes. Yet under honest commodity money system, in real terms, Sam became richer by (44+33)/(8+2)=770% in terms of wheat or (26+20)/(2+0)=2300% in terms of axes.

Mike earned 4,80-0,96=3,84 paper dollars before inflationary price increase, on which, after saving [3,84*20%]=76 paper cents, he could buy [3,08:0,05]=61 units of wheat or [3,08:0,20]=15 units of ax. Mike earned 60,00-0,96=59,04 paper dollars after the inflationary price increase, on which after saving [59,04*20%]=11,80 paper cents, he could buy [47,24:0,075]=629 units of wheat or [47,24:0,30]=157 axes. His savings were worth [3,92:0,05]=78 units of wheat or [3,92:0,20]=19 units of axes, now they are worth 3,92+11,80=[15,72:0,075]=209 units of wheat or [15,72:0,30]=52 units of axes. Thus under inflationary paper money system, in real terms, Mike became richer by (629+209)/(61+78)=602% in terms of wheat or (157+52)/(15+19)=614%% in terms of axes. Yet under honest commodity money system, in real terms, Mike became richer by (182+228)/(61+15)=539% in terms of wheat or (109+137)/(15+3)=1366% in terms of axes. So Mike’s net loss of wealth from the introduction of inflationary paper money is [(614-1366)/1366]=55% in terms of axes.

Adrian earned 96 paper cents before inflationary price increase, on which, after saving 0,96*20%=19 paper cents, he could buy [0,77:0,05]=15 units of wheat or [0,77:0,20]=3 units of ax. Adrian earned 96 paper cents after inflationary price increase, on which after saving 0,96*20%=19 silver cents, he could buy [0,77:0,075]=10 units of wheat or [0,77:0,30]=2 axes. His savings were worth [0,78:0,05]=15 units of wheat or [0,78:0,20]=3 unit of axes, now they are worth 0,78+0,19=[0,97:0,075]=12 units of wheat or [0,97:0,30]=3 unit of axes. Thus under inflationary paper money system, in real terms, Adrian became poorer by ((10+12)/(15+15)-100%)=26% in terms of wheat or ((2+3)/(3+3)-100%)=17% in terms of axes. Yet under honest commodity money system, in real terms, Adrian became richer by (85+63)/(15+3)=822% in terms of wheat or (51+38)/(3+0)=2966% in terms of axes.

The bank issued 71,55 paper dollars in new paper money. Even after using a couple of dollars to pay for bribes to the friendly democratic politicians and charity PR events, it is still left with 69.55 paper dollars – its profits, made out of thine air. Thus inflationary increase of 50%, enabled it to multiply profits by 69,55/7,86=884%.Where they come from - forgone deflationary income of producers of 1/2 of gross income and savings, and forgone deflationary income and loss of real income of 1/4 to 1/2 of gross incomes and savings. Actually, its savings or "hedge" in words of local usurer, the value of which gets stolen by the bank, issuing inflationary paper currency, the loss of which greatly decreases chanced of economic advancement and improvement of standards of living for lower classes .

Now there is a practical question. If satisfaction of customer needs reduces demand for labor, what happens under inflationary paper money system? The answer to the question would be that productivity increases bring about reduction in work time, coupled with decrease of the nominal wages, and the real wages. In this case Sam would have to work 50*(300:400)=37,5 hours and would earn (37,5/50)*50=37,5 paper cents, his real wage would be (37,5:7,5): (50:5)-100%=50% lower in term of wheat and [37,5:30]:[50:20]-100%=50% lower in terms in axes; Adrian would have to work [50*200/300]=33 hours and would earn 96*200/300 =63,3 paper cents, yet his real wage would be [63,3:7,5]:[96:5]-100%=58% lower in terms of wheat and [63,3:30]:[96;20]=50% lower in terms of axes.

Who of productive workers and business men wins after the inflationary price increase, even under conditions of double digits increases in productivity, caused by industrial revolution? No, one except the bank. Who of productive workers and business men loses the inflationary price increase, even under conditions of double digits increases in productivity, caused by industrial revolution? Everyone, and differently - businessmen lost forgone deflationary income, yet workers also loose part of the real income, which ensures class conflict . Under inflationary paper money, industrial revolution brings about loss of large part of deflationary income for businessmen, yet it brings declining real salaries and unemployment or underemployment. No wonder, that the second industrial revolution, that happened in the U. S. in 1980s and 1990s, while creating enormous wealth, actually resulted in decreasing real incomes for lower and middle classes - their share of wealth was stolen by the FRS and big globalistic commercial banks, and wasted by the democratic U. S. government. From this comes increasing poverty and decreasing fertility in America.

By this post I am finishing the first series, dedicated to the various monetary system. I demonstrated that commodity monetary system is far superior to both non - inflationary and inflationary fiat monetary system. Next time, the reader will know, what happened, when the fraction reserve banker came to town.

Today's post will start the series of posts showing the effects of fractional reserve banking, usury on incomes of productive workers and businessmen, as well demonstrating sound European banking practices. This post will focus on effects of fractional reserve banking:

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 paper cents, each ax takes 4 hours of work to be manufactured and sells for 20 paper cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 paper dollars, and pays Sam 1,25*40%=50 paper cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 paper dollar, and pays Adrian 2,40*40%=96 paper cents. Everyone saves 20% of gross incomes and have the following savings: Jack – 6,58 paper dollars, Sam - 51 paper cents, Mike -15,72 paper dollars, Adrian - 97 paper cents. There exist a non – inflationary fiat currency issuing bank.

Suppose a fractional reserve commercial banker comes to town, and persuades authorities to allow it to extend loans, backed by 10% fractional reserves. He offered to pay 4% interest on all deposits, so everyone deposit their savings (6,58+0,51+15,72+0,97)=23,78 paper dollars in the bank.

Let’s return to the first example. Suppose someone invented a new technology, that allows an ax to be produced in 2 hours, and good weather triple the average harvest. The technology costs 30 paper dollars to implement, so Mike withdraws his deposit, and borrows 30-15,72=14,28 paper dollars from the bank at 8% interest as a 5 year loan. Sam, who wants to buy a new car that costs 2 paper dollars, withdraws his deposit and borrows 2-0,51=1,49 paper dollars at 6% interest to purchase it as a 5 year loan. So Jack’s foods now produces 50*3=150 units of food and Mike’s instruments produces [50/2]+[50/2]=50 axes. Now the amount of paper money can be easily adjusted, so the fiat currency issuing bank issues ((150-50)*0,05=5 (50-24)*0,2=5,20)=10,20 paper dollars, and the prices remain the same. Jack’s Foods earned 150*0.05=4,5 paper dollars, Mike’s instruments earned 50*0,2=10 paper dollars. Let’s see, what are the effects of fractional reserve commercial banking:

Jack earned 4,50-0,50=4,00 paper dollars, from which he saves 4,00*20%=80 paper cents. He gets 6,58*0,04=26 paper cents as interest.

Sam earned 50 paper cents. He has to pay to the bank 1,49*0,06=9 paper cents as interest and 1,49:5=30 paper cents as principal, altogether 39 paper cents.

Mike earned 10-0,96=9,04 paper dollars. He has to pay to the bank 14,28*0,08=1,14 paper dollars as interest and 14,28:5=2,86 paper dollars as principal, altogether 4,00 paper dollars

Adrian earned 96 paper cents, from which, he saves 0,96*20%=19 paper cents. He gets 0,97*0,04=4 paper cents as interest.

The fractional reserve commercial banker gets 9+1,14=1,25 paper dollar of interest. The fractional reserve banker pays 26+0,4=30 paper cents as interest. The fractional reserve banker gains 1,25-0,30=95 paper cents of profits out of thine air with no paid up capital required. Thus on each paper dollar paid as interest, the bank earns 1,25/0,30=4,16 paper dollar as interest or 416% profit, extending 32 dollars of credit with 7,55 paper dollars of deposit.

So, fraction reserve banking is a very profitable business, that does not require significant capital, yet brings in huge revenues out of thine air. They come from the savings of the people, which are attracted at much lower rates as they are lent, no matter whether loan in question is for business growth or personal needs. Thus the best strategy for productive worker and businessman is to avoid fractional reserve commercial banks altogether or to minimize dealings with them – their credit is always way too expensive in comparison to what they pay to attract savings, and it is generally better to save or to forgo investment, than to borrow from them.

Very interesting, fdtwainth.

I quite agree. I think people should be able to make a living just by doing something modest, ordinary and useful Instead, we have to be office paper shufflers -- basically economic jews, rather than productive human beings.

It'll happen again. check out www.peakoil.com

Very interesting, fdtwainth.

I quite agree. I think people should be able to make a living just by doing something modest, ordinary and useful Instead, we have to be office paper shufflers -- basically economic jews, rather than productive human beings.

It'll happen again. check out www.peakoil.com

Thank you for these interesting and important points, and original ideas of yours :cheers:

Today's post will focus on definition, practice and effects of usury.

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 paper cents, each ax takes 4 hours of work to be manufactured and sells for 20 paper cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 paper dollars, and pays Sam 1,25*40%=50 paper cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 paper dollar, and pays Adrian 2,40*40%=96 paper cents. Everyone saves 20% of gross incomes and have the following savings: Jack – 7,64 paper dollars, Sam - 0 paper cents, Mike - 0 paper dollars, Adrian - 1,20 paper cents. There exist a non – inflationary fiat currency issuing bank, and a fractional reserve commercial bank, where everyone keeps his savings at 4% deposits. Mike has borrowed 11,42 paper dollars from the fractional reserve commercial bank at 8% for 4 years, Sam has borrowed 2,70 paper dollars from the fractional reserve commercial bank at 6% for 9 years.

Suppose an usurer or "subprime lender", how he is called in the politically correct times, comes to town. The first thing the usurer do, is to lower interest rates paid on deposit accounts. How does he do it: he simply lower deposit rates, and all other fractional reserve banks follow him, in order to cut interest expenses. In absence of strong anti-monopoly regulation, this brings deposit interest rates down, in this case to 2%. Second, an usurer prefers to acquire funds from larger lenders, since such funds are relatively cheaper and more stable, so in this case it acquires deposit of 0,95 paper dollars of the fractional reserve bank at a prime credit rate of 4%, that allows it to extend 9,50 paper dollars in new credit. Third, he immediately raises credit rates, and all other fractional reserve banks follow him, in order to increase interest revenue. In absence of strong anti-monopoly regulation, this brings prime credit interest rate up, in this case to 8%, so Mike's rate is now 12%, and Sam's rate is now 10%. Now let's return to the first example and see, what would be primary effects of usury on honest workers and businessmen - these effects appear before an usurer started to extend any loans:

Jack earned 4,50-0,50=4,00 paper dollars, from which he saves 4,00*20%=80 paper cents. He gets 7,64*0,02=13 paper cents as interest. His primary loss to an usurer is 0,26-0,15=11 paper cents, or 0,11:0,26=42% of interest income.

Sam earned 50 paper cents. He has to pay to the bank 2,70*0,1=27 paper cents as interest and 2,70:9=30 paper cents as principal, altogether 57 paper cents. His primary loss to an usurer is 0,57-0,39=18 paper cents or 0,18:0,39=46% of interest expense.

Mike earned 10-0,96=9,04 paper dollars. He has to pay to the bank 11,42*0,12=1,37 paper dollars as interest and 11,42:4=2,86 paper dollars as principal, altogether 4,23 paper dollars. His primary loss to an usurer is 1,37-1,14=23 paper cents or 0,23:4,00=6% of the interest expense.

Adrian earned 96 paper cents, from which, he saves 0,96*20%=19 paper cents. He gets 0,97*0,02=2 paper cents as interest. His primary loss to an usurer is 0,04-0,02=2 paper cents, or 2:4=50% of interest income.

Now suppose Sam, facing rising interest expenses, decided to refinance his loan with an usurer. Adrian, seeing Sam's car decided to also buy a car, and to finance it through the usurer's loan. How would an usurer price his loans? From here comes the definition of usurer, for usurious activities are defined not primarily through social groups he targets, though it is also an element of definition, but through the way it prices its loans. Through the use of statistics, in which modern "subprime lenders" are very skilled, he determines the average income of a particular social group, in this case workers - (0,50+0.96)=73 cents, and then price his loans so that a person would not be able to repay it, with income on which he lives. In this case 3 paper dollar 10 years auto loan would be priced at (0,73-0,30(principal)):3,00=14%. How would an usurer convince the borrowers to borrow at such terms? By concealing the true interest rate, e.g. by offering 7% interest rate in the first six month, and in then in low type stating, that then the interest rate would be 14%. So let's s what would be secondary effects of usury on honest workers and businessmen - these effects appear after an usurer started to extend loans:

Sam has to borrow from an usurer 2,40+0,18=2,58 paper dollars. He has pay to an usurer 2,58:10=26 paper cents as principal, and 2,58*0,14=36 paper cents as interest, altogether 62 paper cents. His secondary loss to an usurer is 0,62-0,39=23 paper cents or 23:39=59% of interest expense. His total loss to an usurer is 0,18+0,23=41 paper cents or 0,41:0,39=105% of interest expense.

Adrian borrowed from an usurer 3,00-1,41=1,59 paper dollars. He has pay to an usurer 1,59:10=16 paper cents as principal, and 1,59*0,14=22 paper cents as interest, altogether 38 paper cents. His secondary loss to an usurer is 1,59(0,14-0,06)=12 paper cents or 12:39=30,7% of interest expense. His total loss to an usurer is 0,12+0,02=14 paper cents or 0,14:0,39=36% of interest expense.

The fractional reserve commercial banker gets 0,27+1,37+0,04=1,68 paper dollar of interest. The fractional reserve banker pays 0,13+0,02=15 paper cents as interest. The fractional reserve banker gains 1,68-0,15=1,53 paper cents of profits out of thine air with no paid up capital required. Thus on each paper dollar paid as interest, the bank earns 1,68/0,15=11,20 paper dollar as interest or 1120% profit. The fractional reserve commercial bank's total profit from the usurer is 1,53-0,95=58 paper cents or 0,58:0,95=61%

The usurer or "subprime lender" gets 36+22=58 paper cents of interest. The usurer pays to fractional reserve commercial bank 0,95*0,04=4 paper cents as interest. The usurer gains 58-4=54 paper cents of profits out of thine air with no paid up capital required. Thus on each paper dollar paid as interest, the usurer earns 0,58/0,04=14,50 paper dollar as interest or 1450% profit, extending 4,17 dollars of credit with 0,95 paper dollars of deposit.

Now there might be a practical question, why would an usurer extend credit to Sam, who will definitely default on loan. The answer is simple, usurer does not care for this, since it is not going to hold it, but it will sell it as a part of the package of loans either though securitization or credit derivative business to a FDIC insured institution for a part of its value. In this case he would sell Sam's and Adrian's loans for (2,58+1,59)*2,4*0,5=5 paper dollars, earning 5-(2,58+1,59)=83 paper cents or 0,83: (2,58+1,59)=19,9% immediate profit. Thus when Sam is going to default on the loan, it is the taxpayer, who would pay the bill. For this reason, many people in credit derivative and securitization business live off usury, or frankly speaking stealing from the honest workers and businessmen.

Who of productive workers and business men profits from usurer? No one, except the bank. Who of productive workers and business men loses from the usurer? Everyone, and some people, who would normally pay their loans go broke. It is for this reason we need strict anti-usury laws, and consistent enforcement of them, to stamp out the practice, that destroys the livelihood and future of the honest workers and businessmen. Next time: analysis of the effects of fractional reserve banking and usury on the honest workers and businessmen under inflationary paper money.

Today's post will focus on the effects of fractional reserve banking and usury on the honest workers and businessmen under inflationary paper money.

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 paper cents, each ax takes 4 hours of work to be manufactured and sells for 20 paper cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 paper dollars, and pays Sam 1,25*40%=50 paper cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 paper dollar, and pays Adrian 2,40*40%=96 paper cents. Everyone saves 20% of gross incomes and have the following savings: Jack – 8,57 paper dollars, Sam - 0 paper cents, Mike - 0 paper dollars, Adrian – 0 paper dollars. There exist an inflationary fiat currency issuing bank, a fractional reserve commercial bank, where everyone keeps his savings at 2% deposits, and an usurer or “subprime lender”. Mike has borrowed 8,58 paper dollars from the fractional reserve commercial bank at 12% for 3 years, Sam has borrowed 2,58 paper dollars from the usurer at 14% for 10 years, Adrian has borrowed 1,59 paper dollars from the usurer at 14% for 10 years

Let’s return to the second example. Suppose the industrial revolution resulted in an new and improved tractors to be invented, which allow one unit of wheat to be grown in 15 minutes instead of two hours, and a newly discovered energy source allowed for making a machine that produces an ax each 20 minutes. Let's suppose also that the marketplace does not need more than 300 units of wheat and 200 axes annually. So Jack’s foods now produces (50*4)+(50*4)=400 units of wheat and Mike’s instruments produces [50*3]+[50*3]=300 axes. The issuing bank issued (300-50)*0,05 +(200-24)*0,20=47,7 paper dollars for prices to remain stable. Let’s suppose both Sam and Adrian decided to purchase second, more expensive cars priced at 5 paper dollars, borrowing money from an usurer for 10 years at 14%. Let’s suppose also that Mike decided to borrow 50 paper dollars more for 5 years from the fractional reserve bank at 12% to purchase a new energy generator. So through extension of credit the amount of money in circulation increased to 47,7+5,0+5,0+50,0=107,7 paper dollars so the prices of a unit of wheat have to rise to (107,7/47,7)*5=11 paper cents, and the prices of a unit of ax have to rise to (107,7/47,7)*20=45 paper cents. Jack’s Foods earned 300*0,11=33 paper dollars, Mike’s instruments earned 200*0,45=90 paper dollars. Let’s see who wins and who loses from inflationary price increases, caused by credit expansion under fractional reserve banking:

Jack earned 2,50-0,5=2 paper dollars before inflationary price increase, caused by credit expansion under fractional reserve banking, on which, after saving 2,00*20%=40 paper cents, he could buy 1,60:0,05=32 units of wheat or 1,60:0,20=8 units of ax. Jack earned 33-0,50=32,50 paper dollars, after inflationary price increase, caused by credit expansion under fractional reserve banking, from which he saves 32,50*20%=6,50 paper dollars, he gets 8,57*0,02=17 paper cents as interest, and he could buy [26,00:0,11]=236 units of wheat or [26,00:0,45]=58 axes. His savings were worth [8,57:0,05]=171 units of wheat or [8,57:0,20]=42 units of axes, now they are worth 8,57+6,50+0,17=[15,24:0,11]=138 units of wheat or [15,24:0,45]=33 units of axes. So in real terms Jack become richer by (236+138)/(32+171)=184% in terms of wheat or (58+42)/(8+33)=244% in terms of axes. Yet in absence of fractional reserve bankers under honest money system, in real terms, Jack became richer by (244+148)/(32+18)=784% in terms of wheat or (146+89)/(8+4)=1958% in terms of axes. Thus Jack’s net loss of wealth to the fractional reserve bankers under inflationary paper money is [(184-784)/784]=76,5% in terms of wheat and [(244-1958)/1958]=87,5% in terms of axes.

Sam earned 50 paper cents. He has to pay to the usurer 7,70*0,14=1,08 paper dollars as interest and 2,70:9+5:10=80 paper cents as principal, altogether 1,88 paper cents. As a result, his debt to the usurer increases to 9,03 paper dollars, he has no savings. Yet in absence of fractional reserve bankers under honest money system, in real terms, Sam became richer by (44+33)/(8+2)=770% in terms of wheat or (26+20)/(2+0)=2300% in terms of axes. Thus fraction reserve banking made Sam insolvent debtor.

Mike earned 4,80-0,96=3,84 paper dollars before inflationary price increase, caused by credit expansion under fractional reserve banking, on which, after saving [3,84*20%]=76 paper cents, he could buy [3,08:0,05]=61 units of wheat or [3,08:0,20]=15 units of ax. Mike earned 90-0,96=89,04 paper dollars after inflationary price increase, caused by credit expansion under fractional reserve banking. He has to pay to the bank 58,58*0,12=7,03 paper dollars as interest and 8,58:3+50:5=12,86 paper dollars as principal, altogether19,89 paper dollars. Thus he is left with 89,04-19,89=69,15 paper dollars, worth [69,15:0,11]=629 units of wheat or [69,15:0,45]=153 axes. His savings were worth [3,92:0,05]=78 units of wheat or [3,92:0,20]=19 units of axes, now Mike has got no savings. So in real terms Mike become richer by (629+0)/(61+78)=452% in terms of wheat or (153+0)/(15+19)=450% in terms of axes. Yet under honest commodity money system, in real terms, Mike became richer by (182+228)/(61+15)=539% in terms of wheat or (109+137)/(15+3)=1366% in terms of axes. So Mike’s net loss of wealth to the fractional reserve bankers under inflationary paper money is [(452-539)/539]=16% in terms of wheat and [(450-1366)/1366]=67% in terms of axes.

Adrian earned 96 paper cents. He has to pay to the usurer 6,59*0.14=92 paper cents as as interest and 6,59:10=66 paper cents as principal, altogether 1,58 paper dollars. As a result, his debt to the usurer increases to 7,21 paper dollars, he has no savings. Yet in absence of fractional reserve bankers under honest money system, in real terms, Adrian became richer by (85+63)/(15+3)=822% in terms of wheat or (51+38)/(3+0)=2966% in terms of axes. Thus fraction reserve banking made Adrian insolvent debtor.

The issuing bank issued 47,7 paper dollars in new paper money. Even after using a couple of dollars to pay for bribes to the friendly democratic politicians and charity PR events, it is still left with 45.5 paper dollars – its profits, made out of thine air.

The fractional reserve commercial banker gets 7,03+0,05=7,08 paper dollar of interest. The fractional reserve banker pays 17 paper cents as interest. The fractional reserve banker gains 7,08-0,17=6,91 paper cents of profits out of thine air with no paid up capital required. Thus on each paper dollar paid as interest, the bank earns 7,08/0,17=41,64 paper dollar as interest or 4164% profit, extending 50 dollars of credit with 8,57 paper dollars of deposit.

The usurer or "subprime lender" gets 92+50=1,42 paper dollars of interest. The usurer pays to fractional reserve commercial bank 1,20*0,04=5 paper cents as interest. The usurer gains 1,42-0,05=1,37 paper dollars of profits out of thine air with no paid up capital required. Thus on each paper dollar paid as interest, the usurer earns 1,42/0,05=28,40 paper dollar as interest or 2840% profit, extending 12 dollars of credit with 1,20 paper dollars of deposit.

So, what are the effects of fractional reserve banking on honest workers and businessmen under fiat inflationary monetary system? Even under rapid economic growth caused by technological change most workers go broke, left with no savings, shrinking amount of available jobs, and growing debt to the “subprime lenders”. Honest businessmen loose from 80 to 90% of the value of forgone deflationary benefit to the fractional reserve banks, or are left with growing payments to the fractional reserve banks. The each and every kind of bank however prospers, and they number grow, destroying economy around them. This is the picture of present day America, and this is the reason, why we have to end usury and fraction reserve banking, if we want to have a progressive and growing economy, where honest worker would get a living wage, and honest businessman would be able to accumulate capital for new factories and products. Next time – what happened when an honest, Arian banker came to town.

Today's post will show how honest, Aryan banking works.

To remember the characteristics of the model, there are two small businesses, Jack’s Foods and Mike’s Instruments. Jack is producing wheat and employs Sam as a worker. Mike is producing axes, and employs Adrian as a worker. Each unit of wheat takes two hours of work to be grown, and sells for 5 paper cents, each ax takes 4 hours of work to be manufactured and sells for 20 paper cents. Everyone works 50 hours a week, so Jack’s Foods produces (50:2)+(50/2)=50 units of wheat worth 50*0,05=2,50 paper dollars, and pays Sam 1,25*40%=50 paper cents a week; and Mike’s Instruments produces [50/4]+[50/4]=24 axes worth 24*0,2=4,80 paper dollar, and pays Adrian 2,40*40%=96 paper cents. Everyone saves 20% of gross incomes and have the following savings: Jack – 15,24 paper dollars, Sam - 0 paper cents, Mike - 0 paper dollars, Adrian – 0 paper dollars. There exist an inflationary fiat currency issuing bank, a fractional reserve commercial bank, where everyone keeps his savings at 2% deposits, and an usurer or “subprime lender”. Mike has borrowed 17,16 paper dollars from the fractional reserve commercial bank at 12% for 2 years and 40 paper dollars from the fractional reserve bank at 12% for 4 years, Sam has borrowed 9,03 paper dollars from the usurer at 14% for 10 years, Adrian has borrowed 7,21 paper dollars from the usurer at 14% for 10 years

Let’s return to the second example. Suppose the industrial revolution resulted in an new and improved tractors to be invented, which allow one unit of wheat to be grown in 15 minutes instead of two hours, and a newly discovered energy source allowed for making a machine that produces an ax each 20 minutes. Let's suppose also that the marketplace does not need more than 300 units of wheat and 200 axes annually. So Jack’s foods now produces (50*4)+(50*4)=400 units of wheat and Mike’s instruments produces [50*3]+[50*3]=300 axes. The issuing bank issued (300-50)*0,05 +(200-24)*0,20=47,7 paper dollars for prices to remain stable.

Let’s suppose an honest, Aryan banker comes to town. How much would he pay for deposits? He will consult the government authorities and established church recommendations what interest to pay. In this case he will offer 2% saving account, coupled with interest and fees free checking account, attracting the deposit of Jack of 15,24 paper dollars, fed up with low interest and high fees of the regular fraction reserve banks. So with this money he will extend loans to Mike and Adrian to refinance their usurer loans. How much would he charge? Again he will consult the government authorities and established church recommendations how much to charge for asset (auto+house) backed loans? In this case the 10 year rate for secured loans would be 4%. So let’s see what would be the consequences of this credit decision.

Mike earned 4,80-0,96=3,84 paper dollars before productivity increase, caused by industrial revolution. Mike earned 200*0,2=40 paper dollars, after productivity increase, caused by industrial revolution. He has to pay to the fractional reserve bank 17,16*12%=2,06 paper dollars as interest and 8,58 paper dollars as principal for the first loan, and 40,00*12%=4,80 paper dollars as interest and 10 paper dollars as principal – altogether 25,44 paper dollars. Yet he borrows 8,58 paper dollars from the Aryan banker to pay up the first loan, cutting his interest expense by 8,58*(12%-4%):8,58*12%=66% or 8,58*(12%-4%)=68 paper cents.

Adrian earned 96 paper cents. He has to pay to the usurer 7,21*0.14=1 paper dollar as as interest and 7,21:10=72 paper cents as principal, altogether 1,72 paper dollars. Yet he borrows 15,24-8,58=6,66 paper dollars to prepay the loan to the usurer. Thus he prepays 5.9 paper dollars to the usurer, the remaining loan to the usurer standing at 1,31 paper dollars. Thus Adrian cuts his interest expense to 1,31*14%=18 paper cents and 6,66*4%=26 paper cents, together 44 paper cents, (0,44-1):1=56% less or 56 paper cents less and a manageable amount, becoming solvent borrower again.

The Aryan bank earns 15,24*4%=60 paper cents as interest, the Aryan bank pays 15,24*2%=30 paper cents as interest, earning 30 paper cents as profits or 0,60:0,30=200% on each dollar of interest paid, extending 15,24 paper dollars of loans with 15,24 paper dollars of deposits - a hefty profit and a reasonable compensation for its service of matching deposits and loans together. Perhaps the Aryan banker takes on undue risk, by not requiring e.g. private credit insurance on the part of the borrower? Well, he keeps a lien on 50 paper dollars Mike’s equipment together with fractional reserve banker at 38,58/50,00 at 77,16% of value, and two Adrian’s cars and a house together with the usurer at 7,97:18,00=44,21% of value. Thus risk of loss is negligible for the Aryan bank

So, the difference between honest full-backed banking and fractional reserve banking lies in the way they price their loans. Fractional reserve banker prices the loan based on how much he can draw out of a particular pool of lenders, thus less risky borrowers generally pay more, and more risky borrowers pay less, than they would pay to a full-backed banker; thus the less risky borrowers end up subsidizing more risky borrowers. Also a fractional reserve banker pays less attention to collateral, and thus charges more to a better collateralized loan, than a full – backed banker. A full-backed banker, in contrast, charges interest based on a government or established church recommendations, in line with statistically estimated probability of default + determined profit rate. He charges less to a less risky borrower at the expense of more risky borrower not getting a loan. Also, a full-backed banker charges less to a better collateralized loan, giving a substantial discount, in line with a much lesser risk. Thus, under full-backed Aryan banker the honest workers and businessmen pay much lower interest, and are not sucked out by additional inflation. That’s why restoring honest banking principles and creating institutions working on them should be one of our priorities.

This post ends the series, demonstrating the virtues of honest commodity money and honest full-backed banking. Someone, may argue, that the model used here is very simple, and cannot grasp even the tendencies of complex interaction between financial phenomena. Yet the complex models I run to estimate macro- and microeconomic parameters of developed and developing economies yield similar results. I hope, it helped the reader to understand the cause for these two pillars of sound economic teaching, and distilled some of the jewish economic myths, that are spread today within the public, ignorant or semi-ignorant in economics.

To sum up the analysis, I draw the following main conclusions:

1. Under honest commodity money (defined as a monetary system where the only money in circulation are gold and silver), ceteris paribus, both businessmen and workers increase their wealth every year: nominal wages remain the same, yet prices fall, and the value of wages and savings increases. The increased rate of technological change greatly increases the wealth of businessmen and workers: nominal wages and working hours decrease, yet the fall in prices, and increase in the value of money and savings more than compensate this fall, thus resulting in much higher real salaries and improved standards of living due to increase in free time. This demonstrates that deflation is a very good thing for welfare of productive individuals.

2. Under non-inflationary paper money (defined as a monetary system where annual issuance of paper money does not exceed the value of the goods and service produced annually), ceteris paribus, both businessmen and workers increase their wealth every year, yet this increases are 1/3 to 1/2 less than under honest commodity money: nominal wages increase, yet prices remain the same, and the value savings does not change. Part of the loss of productive businessmen and workers are seignorage profits of the issuing bank (defined as a bank issuing currency in circulation), made out of thin air, part are the deadweight costs of the paper money scheme. This demonstrates that non - inflationary paper money system in inferior in relation to commodity money system

3. Under inflationary paper money system (defined as a monetary system where annual issuance of paper money does exceed the value of the goods and service produced annually), ceteris paribus, businessmen increase their wealth every year, yet this increases are 2/3 to 3/4 less than under honest commodity money system, while workers loose 1/4 to 1/3 of their wealth every year: nominal wages increase, yet prices increase even more, and the value of savings decline. The increased rate of technological change increases the wealth of businessmen, though this increases are 2/3 to 3/4 less than under honest commodity money system, yet workers loose their wealth even more, 1/3 to 1/2: nominal wage remain the same, prices rise even more, since it is easier to mask inflation under technological rapid change, and a number of working hours declines, ensuring class conflict. Such situation takes place in the modern U. S, where the Second industrial revolution actually cut the living standards of the population. Part of the loss of productive businessmen and workers are seignorage profits of the issuing bank, made out of thin air, part are the deadweight costs of the paper money scheme. This demonstrates inflationary paper money system bring poverty to the productive workers and businessmen, and profits to the banks.

4. Under fractional reserve banking (defined as bank lending in excess of attracted deposits), ceteris paribus, businessmen and workers, who take out loans, are left paying 1/2 to 3/4 of their incomes to the banks, which pay relatively low rates on deposits, and charge relatively higher rates on loans, and earn profit margins in excess of 100% with little or no paid up capital required. Thus saving money for something is always a better strategy then borrowing money from a fractional reserve bank.

5. Under legalized usury (defined as charging of interest or charging of unregulated and excessive interest depending of the Volk's tradition and culture), there are two main types of its economic effects: primarily and secondary. Primarily effects lies in the fact that legalization of usury leads to a much lower deposit and a much higher credit rates, since the usurer pays very low rates on deposits, and charge very high rates on loans, and fractional reserve banks eagerly follow suit. Secondary effects of usury lie in the fact, that a large part of the workers, who take out loans from the usurer (1/3 to 1/2), go bankrupt, because the usurer charge the highest possible rate from the pool of the prospective borrowers, part of whom wouldn't be able to pay back a loan. This does not hurt the usurer, since due to modern financial innovations, like securitization and credit derivative business, he immediately sells the closed loans for a profit, generally to fractional reserve banks; thus it is their customers, or even the taxpayer who takes the loss, when the worker defaults on usurer's loan. That's why prohibition of usury is an important and necessary part of struggle against poverty.

6. Under inflationary paper money system, fractional reserve banking and legalized usury combined, ceteris paribus, most workers go broke fast, and businessmen end up paying 80 to 90% of their profits to the banks of the various kind, yet each and every kind of banks prosper. Thus getting rid of paper money, fractional reserve banking and usury is a precondition for secure and successful future for productive businessmen and workers.

7. Under honest full backed banking (defined as lending within attracted deposits), the credit and deposit rates are regulated by the government or established church, and fractional reserve baking and usury is forbidden. The loans actually help workers and businessmen to realize their life goals, who now pay 1/4 to 1/2 of their incomes during relatively short (not exceeding 15 years) loan terms, and from that full backed banks draw their profit margins, still lavish (around 100%), but not excessive. This demonstrates that full backed banking is sound and a better alternative to the fractional reserve banking.

What an honest man can do to stop usury in his neighborhood? There are two options: first, proposing and enacting anti - usury ordinances, which, though often preempted by the pro-usury federal law, can still, correctly used, to create significant legal problems for the usurer and force it to relocate elsewhere; second, to work hand in hand with fair credit NGOs in exposing and outlawing usury. One of the best and more professional organization in the field is a Center for Responsible Lending (http://www.responsiblelending.org/index.cfm), which can provide legal help in writing anti-usury ordinances or fighting usury in other available avenues.

The information and analysis that you present are extremely well done.
I have always defined the jewish "banking" system as legal thievery.
They have been implementing these methods for a very long time. To the extent that their methods now financially control most of the monetary systems of the world. I have great respect for those countries who manage to hold on to their own monetary systems. There are few that can claim this.

The information and analysis that you present are extremely well done.
I have always defined the jewish "banking" system as legal thievery.
They have been implementing these methods for a very long time. To the extent that their methods now financially control most of the monetary systems of the world. I have great respect for those countries who manage to hold on to their own monetary systems. There are few that can claim this.

Thank you for your kind words. Sadly, the jewish banking is sucking the strength and vitality out of White economies, and these jewish ideas, masked and presented as "universally accepted" are spreading around in the developed and the developing world, while honest, European banking is sidelined. I think, that White nationalists should develop an alternative to these poisonous ideas, specifically prohibiting usury, fractional reserve banking and strictly regulating interest, and should make elimination of jewish banking a part of the WN Creed and Program.

Thank you for your kind words. Sadly, the jewish banking is sucking the strength and vitality out of White economies, and these jewish ideas, masked and presented as "universally accepted" are spreading around in the developed and the developing world, while honest, European banking is sidelined. I think, that White nationalists should develop an alternative to these poisonous ideas, specifically prohibiting usury, fractional reserve banking and strictly regulating interest, and should make elimination of jewish banking a part of the WN Creed and Program.

To do this, there would have to be a banking system established with totally White resources based on Aryan values.
I think it is realistic to say that the jews would not allow any banking system to compete with their own. A fair banking system would be extremely popular with the whole world.
At what level could this be successfully initiated? How could it be "legal" and still exist under the jew radar for opposition to a jew-controlled world?

To do this, there would have to be a banking system established with totally White resources based on Aryan values.
I think it is realistic to say that the jews would not allow any banking system to compete with their own. A fair banking system would be extremely popular with the whole world.
At what level could this be successfully initiated? How could it be "legal" and still exist under the jew radar for opposition to a jew-controlled world?

Basically, European or 100% reserve - backed interest-regulated European banking houses, connected with the Catholic church, existed and was profitable all the time, and still exists today. The jewish fractional reserve banking, while providing a higher return, tend to generate greater risk, which is mitigated by the deposit insurance, so this risk got underwriten by the taxpayer. Also, all economic departments from the 1960s teach jewish ideas in finance, and their faculty and students are very agressive towards the opponents. Even with this, European banking is regaining popularity in Catholic European countries, and we definitely should focus on it and usuing it to provide a sound and reliable financial services for our kind as well as increasing our financial resources.
The best way to start is to organize Aryan credit unions, on the concept of which I am currently working. When my research would be finished, I will put the concept on the net.

Aryan credit unions. I never would have thought of that. I encourage you to develop this concept. You obviously know what you are talking about and know what you are doing.
Putting control of our money back into the hands of our people.
A major coup, indeed.