Redistribution a solution to inherent unfairness of fiat monetary system?

[Pianist4Freedom]

Also, I think you're oversimplifying when you say that loaned money (which under fractional reserve banking is created out of thin air for the purposes of making the loan) quite literally represents the new product or service (especially considering how services don't really create new wealth, at least not to the degree that production does). To give a counterexample of how this might not be the case (new wealth being created equal to the value of the loan), let's say the new business is a Wal-Mart. Wal-Mart typically does not create new jobs or wealth - rather, it destroys its competition and siphons off their employees and customers. In such a scenario, Wal-Mart certainly receives enough money to pay off the loan, but did it really add net wealth to the economy? Well, no. That's why it's really an oversimplification to say that the money created for the purpose of the loan translates dollar for dollar into new permanent wealth for the economy.

I suppose we should discuss what the definition of wealth is. For me, it is simple. It is anything which saves time or effort for people. The best kind of wealth is of course "permanent wealth:" an idea. When someone figures out you can use slimy black muck in the ground to make oil to power a car, they have basically come up with ideas that can revolutionize how the entire world works and make everyone vastly, vastly wealthier(this is where John Galt and his friends come in). This isn't the only kind of wealth creation, however. Just creating a new Wal-Mart store as you pointed out, IS wealth creation, if it turns out that it is 1) more convenient and faster for everyone to buy stuff there 2)everything there is cheaper. If it saves time and money (and money represents effort and ideas of people) then it has created wealth. Therefore, the more wal marts we have, the more wealth we have. The more widgets we have, the more wealth we have. Of course, the IDEA of a car or the IDEA of wal mart is the permanent wealth, but having more of them is ALSO wealth creation (in my opinion).

Perhaps Wal Mart did become unfairly large because of corporate welfare and because of the inflation tax...but if it does make people's lives easier I would say it is in fact creating wealth.

 

[AceNZ]

Commercial banks (but apparently not the central bank) do indeed profit off of this system more than under a gold standard and full reserve banking (since every dollar is held as debt), but only because of interest payments, not principal. Correct?

Commercial banks profit primarily because of their ability to create new money out of thin air, and then charge interest on it. The new money need only be backed by a much smaller amount of reserves. The entire national debt forms the core of bank reserves.

For an overview of how this works, you might want to check out my video on money creation: http://www.youtube.com/watch?v=xNehYxy77RI

In contrast with our current system, I've always been under the assumption that all money would not be debt under a gold standard and full reserve banking, and the people as a whole would be in the black (hence, money would represent wealth rather than debt). In other words, under a gold standard with full reserve banking (and loans financed by real deposits), the people would not be forever, collectively, in debt to banks, who are forever, collectively, in debt to the central bank, as is the case under our current system. Is this the case?

Yes. The only reason to maintain the Fed's money creation abilities, other than feeding the government's desires to spend as it wishes, is to be the "lender of last resort" in the event that a bank, operating under the fractional reserve system, suddenly runs out of reserves. Using the Fed, banks can borrow new reserves through the discount window (which also creates new money).

With a gold standard and full-reserve banking, those capabilities of the Fed are no longer needed. Banks would no longer be able to run out of reserves, so a lender of last resort would no longer be required.

I suppose we should discuss what the definition of wealth is. For me, it is simple. It is anything which saves time or effort for people. The best kind of wealth is of course "permanent wealth:" an idea.

Ideas that are put into practice, and which either result in production or improve existing production, do become wealth. But an unrealized idea by itself is not wealth. It's potential might have some value, but that's different than wealth.

My definition of wealth is: A functional system that produces either tangible or intangible objects of value to others, and which is capable of generating a long-term stream of profits. Such a system is also known as "Production".

Part of what this means is that services are not wealth, nor is consumption.

One property of wealth is that money flows toward it. Money moves from consumers to producers.