Caught somewhere in the time value of money

November 30, 2012 § 14 Comments

While I fully understand what is meant by the “time value of money,” it is deceptive semantics because money has no intrinsic value at all.  Money is merely a medium of exchange.

Money has what we might call “virtual” value: it represents the suspension in time and space of an incomplete barter of items of real value. We suspend these incomplete transactions in time and space for the sake of liquidity and convenience. Money is a social convention among civilized people by which we agree to make the barter of valuable things non-instantaneous and non-local. This makes our commerce far more efficient, similar to the way that non-instantaneous non-local communication (email contrasted to in-person conversation) makes our communication more efficient.

But the medium is not the message.

Money doesn’t produce more money, let alone more real value, on its own: it has to be invested.  To invest money is to complete the incomplete barter transaction implicit in a sum of money, by converting that money into something non-monetary (land, labor, materials, or what have you). An investment isn’t a loan (in the strict sense): it is the purchase of an ownership interest in some productive enterprise or existing assets. Ownership of assets entails the possibility of loss, a.k.a. risk.

That is why corporations don’t keep around any more cash than they really need to.  Any competent CFO knows – whether he puts it in precisely these terms or not – that cash has a decaying virtual value and must be invested in something just to stay even, let alone to earn profits.  The line called “cash and cash equivalents” on the balance sheet is mostly not cash at all: it is non-cash investments that are highly liquid, that is, which can be sold quickly to raise cash when cash is needed.  (Why do we need cash?  To facilitate the completion of suspended or virtual barter transactions, like the worker bartering his labor for a growing share of the house he lives in).

Usury is demanding profits from a loan to a person: from transfer of money to a person, from whom recovery of principal is demanded. This is distinct from purchase of an investment share in some particular thing or enterprise (the assets to which one has recourse for recovery of principal).  As St Thomas Aquinas puts it:

He who lends money transfers the ownership of the money to the borrower. Hence the borrower holds the money at his own risk and is bound to pay it all back: wherefore the lender must not exact more. On the other hand he that entrusts his money to a merchant or craftsman so as to form a kind of society, does not transfer the ownership of his money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand as something belonging to him, part of the profits derived from his money.

Whatever labeling conventions we use[*], if our investments are not ontologically a kind of equity – a kind of asset ownership, with rents or other profits produced by the use of those assets and with our personal risk tied up in those assets – then they are usury.  Lending money to a person and expecting to be repaid principal and receive a profit has always been usury, is still usury today, and is always morally wrong.


[*] I’ve taken to using the terms asset recourse and person recourse to distinguish between whether our claims to recovery of principal are made on specific assets (in which case it is not usury, because our investment is de-facto a purchase of an ownership interest in those assets) or on a person (in which case it is usury).  This is my shorthand for a contract distinction which was well understood by the medieval Magisterium but which many modern people would perhaps rather not understand.

Money in the bank is not like money in the bank

November 28, 2012 § 9 Comments

[UPDATE: Also see this more recent post].

I often see it asserted that fractional reserve banking – the practice of taking in deposits and lending them out in the form of asset-recourse loans[1], without keeping enough cash on hand to return every cent to every depositor on demand at any time – is morally wrong.  I don’t agree.

Bank deposits are in fact not actually cash, but a kind of share in the operations of the bank.  They are similar to what are called preferred shares.  When preferred shares in a business operation are redeemed you first get your original money back[2]; then you split[3] the profits[4] of the business operation with the owners of common equity.

“Debt”, when it is asset-recourse as opposed to person-recourse, is really just a specific kind of preferred share[5].   When profitable interest-bearing debt has recourse to a person rather than to specific contractual assets for recovery of principal – that is, when it is strictly speaking what the Magisterium defines as lending for profitable interest in moral theology – it is usury.

When a business fails, preferred shareholders get first claim to assets before the common equity owners get anything.  Some kinds of preferred shares take priority over other kinds of preferred shares: “debt” generally speaking gets the highest priority, at least in terms of recovery of the initial investment (“principal”).  So “owning” the business, or what we call common equity in the capital structure, is generally far riskier than owning preferred shares.  It can also, generally speaking, be much more profitable when the business succeeds.

When you open a savings or checking account at a bank, this is the kind of business relationship you are initiating.

Credit unions (as opposed to banks) do use more honest language to portray what is going on: you write “share drafts” not checks, for example. FDIC insured shares are still just shares, not cash.

There isn’t anything intrinsically wrong with this arrangement, and I don’t have a lot of sympathy for people who “put money in the bank” – that is, buy these kinds of shares – in 2012 without understanding the possibility of bank runs and FDIC insurance and such.

Mind you, I’d be the last person to give a free “honesty” pass to the actual marketing practices for financial products in 2012. My statements should not be taken as a blanket defense of all such practices.

But there isn’t anything intrinsically wrong with the business arrangements we call “savings accounts” and “checking accounts”, nor with their connection to fractional reserve banking, nor with the fact that they only remain liquid as long as operations stay within a normal range. In the Google Age anyone who makes those business arrangements with a bank without understanding them – at least to the extent of understanding that under extreme circumstances deposits might not be immediately available, and may disappear entirely unless the government makes good on FDIC guarantees – has only himself to blame.


[1] In practice a great deal of the lending is person-recourse (like credit cards) as opposed to asset-recourse (secured non-recourse, for example loans to a corporation or non-recourse home equity loans), which makes it usury.  This is morally wrong because it is usury though: it doesn’t have anything to do with fractional reserve lending per se.

[2] You may label the redemption of the amount of your initial investment “principal” if you like.

[3] Profits are not split evenly, generally speaking, although they could be: contract terms vary widely.  In a typical example preferred shareholders might be entitled to  a fixed percentage return over the investment period before the remainder becomes a big (or small, or nonexistent) pot to be split based on ownership percentages.

[4] You may label your portion of profit “interest” if you like.

[5] To argue semantics with myself, the difference between preferred shares and debt is that after all of the debt and preferred redemptions have happened the preferred shares typically convert into common shares (under some conversion ratio) to participate in splitting up the remainder of the pie, while debt typically does not.   Debt is typically only entitled to return of principal and some time based fixed-percentage profit.  A bankruptcy judge might recapitalize and convert the debt holders into common equity in some new entity that takes on the assets of the failed business; but at that point we are past contractual terms anyway and are just trying to make the most of the remains of a failed business.

(This post is an expanded version of a comment from this thread).

Here comes the boom

November 27, 2012 § 8 Comments

Economic pessimism is a booming business among political conservatives. The reelection of Barack Obama has reinvigorated conservative predictions of doom and gloom right around the corner; but that is just amplifying a pre-existing sentiment. Conservatives and also antifeminist “manosphere” bloggers are predicting a great collapse in the next decade or two based on their theories of economics.

I think they are wrong.

Mind you, it isn’t that the sudden collapse of civilization is not possible. It certainly is, and in my view we came precariously close to it happening in 2008. But I think the conventional reasons why conservatives think collapse is coming – too much debt, too few producers and too many consumers, etc – are wrong.

One of the reasons why so many people are wrong (in my view) about debt and economics is misunderstandings about currency. Currency has no value in itself: it merely facilitates the exchange of actually valuable things. Saving dollars is the height of folly: if you want to store up value you should store up actually valuable things, not notional exchange paper. Government does not have a monopoly on the issuance of currency: all sorts of different currencies are issued by all sorts of different public and private entities. There is plenty to critique in modern monetary theory; but one thing it gets right is that what makes government currency unique is the fact that (mandatory) taxes must be paid in it. Other than that it is just one kind of paper in a great ocean of paper. Currency stability is primarily a function of the annual tax cycle, and the fact that the government doesn’t want to rip itself off by being paid in debased dollars for year-old transactions.

Another reason why so many people are wrong (in my view) about debt and economics is misunderstandings about the relationship between labor and value. I don’t know if that relationship can in principle be adequately captured by an economic theory; but I am virtually certain that it hasn’t in fact been adequately captured by any actual economic theory. As with many aspects of the modern world, we are more comfortable with bad theories than we are conceding ignorance.

Still another reason why so many people are wrong (in my view) about debt and economics is that they have assumed that economic theory has more influence than it actually does have. It is hard to describe what I mean here abstractly, so let me make it more concrete.

Many economic conservatives assume that rising debt and an increasing ratio of consumption to production (more welfare queens, fewer productive workers) will lead to some sort of short term (next few decades) collapse. Predictions range from Greater Depression to Mad Max.

The unstated assumption here is that the great majority of real value is created primarily by labor. That is far from obvious. Some of the wealthiest-per-capita nations on earth have very unproductive labor forces. What they do have is enormous resources. Saudi Arabia has fantastic oil reserves; but the latest numbers being noodled by the oil guys show the US surpassing them in oil production and becoming a net exporter of oil in a decade or so. The US has an incredible store of natural resources. The lack hasn’t been natural resources: it has been the technological capability to exploit those resources in a way which is economically competitive with just shipping “easy” oil over from the Middle East. That is changing. We could easily see decades of solid economic growth on the back of a technologically enabled resource boom; and such a boom would be independent of welfare-state inefficiencies. That is just one of many “upside” economic scenarios I can imagine, especially keeping in mind that physical resources are not the only kind of resources.

This is a perhaps roundabout way of getting to my main point: conservative pessimism is in a sense a form of optimism, because it brings with it the expectation that liberalism’s vision for society will run into cold hard reality some time very soon, and fail. But that isn’t obvious to me. It is perfectly possible that the liberal vision of a society of unrestricted hedonistic freedom and equality supported by murder and cannibalism of the weak and unfit, financed by endless public wealth, is sustainable for centuries. Rex Mundi, and all that: evil gets far more mileage out of modern prosperity than it ever got out of material deprivation.

Examples of calumnies against Todd Akin

November 26, 2012 § 5 Comments

Calumny is when someone tells falsehoods about a person in a way damaging to that person’s reputation or standing in the community. In the case of the Todd Akin affair, many people have told lies about what he actually said.  I’ve said my piece about that here, here, here, and here; but one thing I haven’t done is explicitly give examples of the lies.

There are far too many to document, in truth, and in any case I’m not interested in making accusations against particular individuals. But to the extent that my thesis has been resisted it has mainly been by those who object by characterizing lies as not lies: by claiming some right to uncharitable interpretation, such that one may licitly assert that Akin said something when he actually didn’t say it, contributing to the pile-on damage to his reputation in the process, without committing calumny.

It has also been suggested that if a lot of the lies told about what Todd Akin said really are lies then a significant amount of political speech and blogging is immoral. With this latter I agree. I’ve suggested before that things like voting and blogging provide plenty of vicarious opportunities to do evil; and where there are pervasive opportunities for fallen human beings to do evil we usually see lots of fallen human beings doing evil.

Notice what I am not addressing here: I am not addressing Todd Akin as a candidate, politician, pro-life leader, or human being. I am addressing specifically and only what he actually said in his widely disseminated comments about rape and abortion. It is not acceptable to tell lies about what he actually said just because we object to other things about him. To take it all the way to the Godwin asymptote, it is not morally acceptable to lie about Hitler: lying about Hitler in a way which damages Hitler’s reputation is still calumny, and we shouldn’t do it.

Notice also that I am not accusing people who think his actual remarks were untoward or insensitive or whatever of asserting falsehoods. What I am addressing specifically is claims that Akin said X, when in actual fact he did not say X and may have even said the opposite of X. Lying about what someone said in a way that piles on damage to his reputation doesn’t become morally acceptable under some postmodern subjectivist rubric of “interpretation”. Either he said it or he didn’t; and if we claim he said it when he didn’t actually say it, we are liars.

Finally, I am not addressing someone’s intentions or culpability in committing calumny against Akin. I am addressing the behaviour such a person chooses. Someone who commits calumny against Akin may have all sorts of conflicting feelings, rationalizations, or what have you. I don’t care about those things. Someone might even have done so while making a completely non-culpable error in judgement. Again, I don’t care: it is never acceptable to equate evil done, even through a non-culpable error in judgement, with a good act. An evil act is a disorder in relation to the truth about the good, and a calumny against Akin is a calumny against Akin no matter what subjective protestations are raised. What people have actually said matters and cannot be swallowed up in the moral disinfectant of subjectivity. Someone who has committed calumny against Akin should retract it, in at least as public a way as it was initially done, and even if doing so was based on a non-culpable error in judgement (trusting some media paraphrase or seeing only some truncated quote that leaves the impression that he said something different come to mind as possible conditions for such a non-culpable error).

I’ve personally only seen one single person retract and apologize, and good for him. That’s the kind of guy I want in the moral foxhole with me.

So without further ado, here are just a few examples of how ostensible pro lifers have falsely characterized Akin’s words.  Maybe I’ll add some more over time; maybe not.  I am not going to link or attribute them, because the point is not to call out particular individuals. The point is for people of good will to wake the Hell up to what they are doing and stop doing it:

Akin’s deplorable comments were a psychic re-rape.

… when [the victim is] basically being blamed for being raped, …

… implies she should just get over [rape] or not let it bother her … 

So there’s nothing offensive about [Akin’s] notion that pregnancy is proof the rape victim Really Musta Wanted It?

The implied conclusion that a woman seeking to abort a pregnancy resulting from rape may be assumed to be lying…

Akin demonstrated he believed one of the following:

1. Pregnancy from rape is impossible. This would reveal scientific ignorance, and, in my view, be disqualifying.

2. Pregnancy from rape is too rare to require being addressed specifically.

[Notice how this one is set up too. The first is ludicrous and bears no resemblance to what Akin actually said, but it poisons the well to set up the second falsehood to look like it is a reasonable “interpretation” of Akin’s words. In fact Akin not only didn’t say the second, he actually specifically addressed pregnancy in the case of legitimate rape in the very comments under “criticism”.]

Hobbit trepidation

November 24, 2012 § 15 Comments

Relatively speaking, compared to most of what Hollywood produces, the Lord of the Rings movies are wonderful art and entertainment. They are right up there among my favorite movies, and I do enjoy movies.

A big part of why they are great movies (as movies go) is because they are based on a wonderful story. I think the story is so good that despite the screenwriters’ best efforts to vandalize it a great part of what is good shines through in the medium of film.

But the Peter Jackson movies weren’t merely a transformation of art from one medium to another. They were also a kind of desecration. The character of Faramir was destroyed, the virtuous warrior remixed as whiny daddy-doesn’t-luuuvvv-me teenager. The nature of the Ring itself went from tempter -qua- powerful weapon – inherently powerless over a virtuous Faramir, as the slut temptress held no sway over a virtuous St. Thomas Aquinas – to a kind of banal science fiction mind control ray of universal effect. The decades-long loyal male friendship between Frodo and Sam becomes a strained, homoerotic bromance: like the paper thin loyalty of insecure teenage girls, their fragile foxhole cohesion cracks under the oh-so-terrible strain of Frodo’s new BFF Gollum whispering lies about that fatty Sam. And those are just off the top of my head.

One thing the Hobbit has going for it is that it was really just a little adventure written for children. It doesn’t share the epic grandiosity and deep virtue of its sequel series. But whether that ultimately helps or hurts remains to be seen, and I await the Hobbit with some trepidation.

I did not support Todd Akin

November 22, 2012 § 3 Comments

Just to clarify an issue raised by a commenter here (apparently only Google accounts can comment): I did not support Todd Akin as a candidate. In fact I don’t vote at all, and I wouldn’t support other people voting when I wouldn’t do it myself. Beyond that, I don’t live in Akin’s state, and even if I did vote I wouldn’t know enough about him to opine on his overall merits as a candidate.

So someone reading my posts on the widespread calumny of Akin by ostensible pro-lifers as support of Akin qua candidate have made a mistake. I am against calumny because it is calumny, not because I personally support some Republican political agenda.

I also made the point that you don’t cultivate good leaders by throwing the “purists” under a bus when they make true statements that aggravate liberals. Purist politicians – that is, actual pro-lifers – are rare enough already, and no self respecting “purist” leader would willingly step up on behalf of the kind of ninnies who stabbed Akin in the back. I know I wouldn’t, if I were a believer in universal suffrage democracy and interested in politics (neither of which is the case).

So I’ve taken two positions here, neither of which entails support of Akin qua candidate: one against calumny, and the other against being the sort of pathetic politically correct followers that no self respecting leader would be willing to lead.

That we must call abortion murder and a crime is doctrine

November 20, 2012 § 5 Comments

A reminder from Evangelium Vitae that we are not to pussyfoot around the language we use to describe abortion:

The acceptance of abortion in the popular mind, in behaviour and even in law itself, is a telling sign of an extremely dangerous crisis of the moral sense, which is becoming more and more incapable of distinguishing between good and evil, even when the fundamental right to life is at stake. Given such a grave situation, we need now more than ever to have the courage to look the truth in the eye and to call things by their proper name, without yielding to convenient compromises or to the temptation of self-deception. In this regard the reproach of the Prophet is extremely straightforward: “Woe to those who call evil good and good evil, who put darkness for light and light for darkness” (Is 5:20).

What’s the rallying point?

November 17, 2012 § 11 Comments

In the opening scene of the movie Saving Private Ryan, Captain Miller (played by Tom Hanks) and his troops are landing on Omaha Beach at Normandy, in the midst of horrific machine gun fire from German bunkers. The movie is such an unprecedentedly realistic portrayal that actual veterans of World War II who saw it often ended up in counseling, having seen the horror again for the first time since they were young men.

There are plenty of memorable moments in the film. One that sticks in mind is when, under terrible gunfire and with men getting cut to pieces around them, a subordinate yells to Miller “What’s the rallying point!?”

Captain Miller yells back, “Anywhere but here!”

There are similar casualties around us, right now. Because of the peculiarities of the modern condition they hide in plain sight. But as I’ve observed before, the Nazis have nothing on us, objectively, in terms of raw horror and numerical body count.

People get frustrated at my writing, or misunderstand it, because I am mostly just diagnosing and observing facts. I don’t have a big plan or a big answer for how the levers of the big machine ought to be moved to technologically craft some idealized society. I am not recommending that we reverse women’s suffrage, for example: I see no particular reason why that in itself would do any good. In itself the action taken as some tyrannical imposition would have at best highly unpredictable effects. Even to say that a society where it becomes a thinkable action would be capable of reversing course on abortion oversteps the bounds of reasonable claims: such a society as a point B from today’s point A could easily be a horror show. The most I would suggest – as a matter of prescription not diagnosis – is that a society which pervasively views women’s suffrage as a basic requirement of justice will be incapable of opposing a “right to abortion”. So we ought to at least do what we can to call into question that basic error, and take what opportunities may present themselves to correct that attitude, if we care about the unborn.

I don’t have an answer to the question “What’s the rallying point?”, other than “Anywhere but here!”

Blinders full of women

November 17, 2012 § 22 Comments

One of the peculiar features of modern society is the extent to which manifestly obvious facts hide in plain sight.  Something can be so obviously true that it hits us over the head relentlessly, day in and day out, year in and year out; and yet when we state it out loud we get some combination of outrage and impossible-to-satisfy demands for “proof”.  This isn’t a totally new phenomenon, of course: The Emperor’s New Clothes was written in 1837.  But political correctness is pervasive in modern society, to the extent that even most pretenses to political incorrectness are just political correctness repackaged.

So it is with the connection between female suffrage and abortion law.

There are really just three basic questions here:

  1. Does women’s suffrage in itself – that is, the actual voting patterns of women – affect abortion law?
  2. Does the pervasive view that female suffrage is a matter of basic justice, as opposed to a prudential choice about governance over which reasonable people may disagree, affect abortion law (through everyone’s voting patterns, through judicial and regulatory decisions, and through literally millions of other everyday actions and considerations)?
  3. If these things do affect abortion law, in what direction do they affect it?

The answers to these questions are obvious; and yet every fibre of the modern being resists acknowledging them.  (That in itself, ironically, provides additional evidence of the effects that attitudes about womens’ suffrage are having on our culture and our polity).

The first question, even though it is ultimately the least relevant of the three, is the easiest one to answer in the affirmative: yes, the actual voting patterns of women most certainly have an impact on abortion law.  I’ve already made the point that it is women’s actual voting patterns specifically which make it nearly impossible for a pro-life politician to be elected without embracing exceptions for rape, incest, and life of the mother.

I would submit that the answers to all three questions are blindingly obvious.

Suffrage the little children

November 16, 2012 § 4 Comments

Those of you who have argued that womens’ suffrage has no practical effect on abortion law really need to think again.

Abortion controversies ultimately intersect with privacy concerns. For millions of women, candidates grasping for a rationale to ban abortion in cases of rape looked like the ultimate invasion of privacy.


Exit polling by The Associated Press showed women voters going for Sen. McCaskill by a 3-2 margin, while men supported the two about equally.

One practical effect women’s suffrage obviously has right here and now is that it requires candidates who want to win to support the Three Exceptions.  In other words, it requires anti-abortion candidates to not actually be anti-abortion.

Where Am I?

You are currently viewing the archives for November, 2012 at Zippy Catholic.