| | Michael's post is a difficult one to reply to. He seems to agree with me most of the time by restating what I already said, digressing to other ideas and disagreeing with others. I'll try to address some of these.
You never lend money that you might need in an emergency. That's bad practice. Of course, but one never knows if one might need money in the duration of the loan. It's always a risk and the lender wants to be compensated for it.
Take 1000 widgets, combine them with 500 sprockets and make 250 gadgets. You sell the gadgets one-up retail to people who seem to "consume" them by placing them on their dining room tables as ornaments. Now, the world has 250 gadgets as capital goods enhancing the homeliness of dwellings, making everyone's life better. Socialists call that "consumption." I call it investment. Well, I also call it consumption. Whether the devices are ornaments or useful appliances they degrade or become obsolete and useless. In that sense they have been "consumed" unless they are true works of art that become more valuable with time. Only in that sense can they be viewed as investments.
The ontology of money is a difficult subject. Menger and Von Mises were wrong. The standard tripartite definition of money (medium of exchange, store of value, unit of account) is inherently inconsistent and lacking in empirical validation. By analogy, is an automobile a means of conveyance that enables suburbs and kills teenagers? I don't understand the analogy. Why is money not a medium of exchange and a store of value? I don't know what a unit of account is. (an entry in a ledger?)
Valuing the future is not a floating abstraction. The future exists. Values exist. Obviously, we value the future differently, both qualitatively and quantitatively.
You have to value something in the future. Does a person who "values the future" value everything in the future? What about pestilence, war and disease? Unless what it is that is valued is specified it's a floating abstraction.
To take your point, if capital is deferred consumption, then that implies that eventually, it will be consumed. At that point, does it cease to be capital? I understand the model. You store your seeds, plant them, and get more seeds, many of which you eat, some of which you store for planting next season. To make a model out of that is fallaciously limiting. You have to get beyond (or behind or beneath) "agriculture" and stop seeing it as a primary. Yes, all capital will eventually be consumed but it can create more capital on the way and "trickle down". When Bill Gates builds a $38 million dollar house it is a capital asset. It will eventually decay and fall into the Pacific Ocean but the tradesmen and manufacturers who have provided the materials and skill have been able to purchase and maintain the capital goods of their tools and factories. You may want to argue that they will just spend their hard earned wages and profit on gambling, booze and broads, but that isn't the way it happens.
There is no social bond in self-destruction.
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The borrow[er] does not "consume" the money, but invests it and from the profit pays for the use of it. He may very well "consume" the money and not invest it. Gambling, booze and broads are not investments. The money is gone, at least for him.
Back to my original point — all the extra compensation a lender demands is based on risk and uncertainty — that of inflation/deflation, not getting repaid, possible legal complications, and loss of use of his money — not for the abstract concept of the lender valuing the future more than the borrower.
Sam
(Edited by Sam Erica on 1/21, 10:29am)
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