The Hotel owner might just as well have printed up a counterfeit 100 euro note and the whole tale would have worked. He might also have written his own 100-IOU and as long as everyone accepted his IOU as a medium of exchange the whole tale would have worked. Even a computer program that they all tapped into for purposes of bartered economic exchange between themselves would have worked without the transfer of any item as money. It would be a computerized system of barter thus without the need for a medium of exchange.

The tale could have used a 100 euro note that the hotel owner already had and we could have seen it transferred around the group and come back to the hotel owner. All the 100 euro debts would have been paid exactly as in the tale, but of course there is no humor in that.

It is really quite easy to come up with humorous tales about the function of money as a medium of exchange, because most of us can get easily confused (including me a retired prof. of economics) by the functions of money.

All of these would work just like the tourist’s 100 euro note, but perhaps these methods would not be qui

I am trying to bring to peoples attention the importance of a new technology which is currently being used only as a charity but I think people have not grasped the potential yet and that is micro loaning sites such as Kiva.com

In this type of credit debtor system the creditor(you) has already earnt their credit giving it value and they loan what they have earnt unlike banks who create out of thin air what they loan, therefore when the debtor pays back the money it does not get taken out of circulation but instead the process has created more wealth all round so like your story where debt can be paid off this easy value can also be created this easy, so much abundance would be created it would be hard to grasp.

Paying off debt this easy is NOT how the US is doing business otherwise everyone would be debt free this is how it would work under a micro loaning system where people loaned to each other bypassing the banks and fractional reserve system.

The game is easy to see when there are 10 guys in a room with 9 chairs – obfuscated when there are 20 million with 19,999,000 chairs!!

If you work with a simple model, it’s also clear that debt amongst ourselves is of a different order than debt owed to the banks. The “magic” of GDP does indeed work as described in the fable, (albeit temporarily / cyclically), but we enjoy no such advantage (leverage) in paying off the initial loan – the one that “created” the money / debt in the first place.

We always hear about debt as % of GDP – makes no sense at all.
GDP may create “virtual wealth” within an economy, but it has nothing to do with creating wealth regards the initial loan, (zero sum game + interest).
And the linkage of the economy and finance is another great way of confusing the issue.

Re. The gold standard, can you gold / Austrian School guys please explain how you create money? I cannot find this information anywhere, (i.e. is all your money debt too? Gold-standard debt ??).

And has anyone out there investigated CAFRs?

First each party is making two transactions. First he has income in the amount of 100 euros. Next he is making a de t service payment in the amount of 100 euros. Therefore he has had 100 in income and his balance sheet is showing 100 less in de t which means his net worth went up by 100. The tourist is like a taxpayer in that he made an involuntary loan. Unlike the taxpayer he gets his money back. Since these were unreportable cash transactions the government never got it’s cut. If the taxman was in each locatio and took a portion to finance govt activities like giving the hooker an aids test and inspecting the butchers meat and checking the hotel for bed bugs, the tourist may have only gotten 50 euros and an IOU. Just like taxpayer.

But let’s take it a step further. If our tourist goes to each party and says you’re owed 100 euros and there is virtually no chance you will ever get paid. So he buys each debt for 10 per ent of face value, then he redeems each debt for 100 euros worth of service or product from each debtor, at the end of the day you will have a well fed, well rested and sexually satisfied tourist at highly discounted price. And the town’s people will have a little bit of money and a lot less debt.

http://forums.somethingawful.com/showthread.php?threadid=3159732&pagenumber=1

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow around them will deprive the people of all property until the children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies…The issuing powers should be taken from the banks and restored to the people, to whom it property belongs.” Thomas Jefferson