Monday, June 11, 2012

#9 Why Proposed Constitutional Amendments Will Not Work and Other Matters. Attn: Bill Still and Rep. Dennis Kucinich.

A strong case might be made against the Constitutionality of the Government's practice of "borrow-creating" on the ground that the Constitution makers could not have had this in mind when they wrote the word "borrow" into the Constitution. The practice of commercial bank borrow-creating had not come into use in their time. Their complete unconsciousness of this modern method is borne out by the debates in the Constitutional Convention. More fundamental, however, is the fact that neither constitution nor legislation can qualify a government to be a money issuer. As stated, money issuing power springs only from natural law, and this law disqualifies governments. Had the Constitution makers undertaken to invest Government with the money-issuing power, it would have had the same enabling power as if they had declared that it should have power to regulate the movement of the planets.” 

E. C. Riegel
Flight From Inflation
Chapter 4 Legal Counterfeit

This paper comes as a direct response to an unidentified blogger who calls himself “video rebel” and posted a piece entitled, “Two Proposed Amendments To The US Constitution: 28th Make Government Debt Illegal And 29th: No Fractional Reserve Banking.” Posted on June 9, 2012. You can read what he says hereBut I'm also writing in response to Bill Still (whose work and research I admire), Rep. Dennis Kucinich (whose genuine interest in the welfare of the people he serves is duly noted) and others who actually believe that if we just went back to following the Constitution, everything would turn out OK.

Well it would not turn out OK because the framers very frankly didn't know what they were doing with regard to money, finance and banking. We have the advantage and opportunity afforded us by history in these matters. We have the ability to dissect the present system and discover its flaws. We propose a different remedy and it is certain that we are going to need a vision of something that will make the transition to wherever it is the world economy will be going easier.  We need to get to work building it as if we were building life-rafts, because the present financial system is like the Titanic and it has already hit the iceberg and will be going down and there is nothing that can possibly be done to save it.

At the moment we should get some things straight from the very beginning (and yes I am hopefully speaking to those like Mr. Still and Rep. Kucinich, who perhaps still think just giving it all back to the Treasury solves anything. They are encouraged to get in touch with me as we need to help each other out as best we can).

POINT 1. The INALIENABLE right of each human being to create (to call into existence) their own money and to use it in all trades where money is normally used as a means of exchange shall never be infringed. This right to create money shall belong ONLY to individual human beings and to no group of human beings no matter how so constituted. It follows therefrom that:

A. All governments are excluded from and forbidden forever the right to create money, because they have nothing to sell that anyone wants to buy and therefore live as parasites on the rest of society. Debate this all you want, it's the honest truth. Everything a government needs to live on is ultimately taken from society by FORCE. (We will have further occasion to treat of these issues as the work of Frédéric Bastiat (1801-1850) is currently under review. Those wishing to contribute monographs on this general topic are invited to do so.)

B. All groupings of human beings are likewise excluded from and forbidden the right to create money because they derive their worth in human labour that in this system will be self-financing and therefore available to any group. (This is a subject covered in some detail by E. C. Riegel, but I am sure there are antecedents of the same idea to be found elsewhere. Those who wish to submit a monograph on this subject are invited to do so.)

C. All groupings or organizations wishing to take part in the Value Exchange Network (VEN) would have to satisfy certain basic requirements that would be established by local Independent Exchanges (IE's) in accordance with some simple ground rules. I'm leaving this topic as it is for the moment as this too deserves a separate discussion. (Those wishing to make contributions concerning this topic are encouraged to submit monographs).

D. It means an automatic end to all “legal tender” laws as invalid and intended to grant a monopoly, which is not acceptable under common law.

POINT 2. The understanding that very frankly and honestly no money is ever backed by anything other than what it buys. This is a core E. C. Riegel concept. We stick to the basics: money is a means to split barter for real goods, services and labour and nothing else. It creates its own value and its own supply when the only ones allowed to create money are individual human beings. That said:

A. Let's be clear from the outset that while E. C. Riegel understood that very frankly those without money needed it and if they were the only ones allowed to create it (whom he called “red inkers”) that one would have a far more equitable system. But he didn't suggest that the amount of money be either excessive nor endless. These matters would be part of each community's IE and would be based on factors related to the subject of mutual banking, with some notable exceptions granted to certain individuals based on genuine need or former contracts. I want to leave this at that for now too.  This whole area is going to take many papers to sort out.  (Those wishing to contribute monographs on this subject are welcome to submit them.)

POINT 3. The current practices of usury and compound interest are forbidden forever as they universally and ultimately create claims without creating the money to cover the claims. This results in an inevitable scarcity of money (no matter how much is created by the usual means) and an inevitable concentration of power and property into the hands of the few who control and benefit from that monetary control. The mathematical absurdities created and the likewise fallacious and fanciful notions that idle split-barter money is owed anything by the rest of society are thrown out completely and forthwith. It therefore follows that:

A. No money on account in any IE would earn any interest whatsoever. Since we do not accept the idea that idle money needs reward, it shall not be so rewarded.

B. The only source of funding for any IE would be through transaction fees, which E. C. Riegel envisioned could be as low as one tenth of one percent or .01 %.

C. This opens up financing to a potentially far greater number of people because although interest and compounding are disallowed, there are simple methods of finance which benefit those who wish to become financiers in an honest and credible system.

D. Each IE would have the primary responsibility of certifying all financial transactions as valid under rules that will be strictly adhered to so as to catch anyone breaking this fundamental and incontestable point. We will not have gained anything by adopting an alternative system, if we do not decide here and now to slay these monsters and forbid them forever.

POINT 4. No IE will ever operate under the fractional reserve banking model and will not need to. Each member's account will be inviolate; no IE or anyone else can borrow / use / leverage / hypothecate or in any way entangle anyone else's money for any reason whatsoever. This means that:

A. Deposit insurance is not necessary.

B. No IE will ever be operating in the finance business. They are only ever concerned with exchange.

C. The financial business will always be separate and operate independently of the IE, however all their transactions will require the review and acceptance of an IE in order to be valid transactions.

POINT 5. The monetary unit shall be known as the Value Unit [Both the use of the name Riegel for a unit of money and the Riegel Monetary and Exchange System are patented trademarks belonging to Laurence Gilbert, hence we cannot use them]  The Value Unit will be a decimal system with each Riegel divisible into 100 cends. Further we suggest the following:

A. The Value Unit will appear in all current forms in which money is represented; paper notes to be known as Exchange Notes, coins for the fractional units of cends, plastic cards, checks, data entries on data processing equipment, etc.

A.1 As regards Exchange Notes, we suggest these be in appearance similar to current bank notes with the following stipulations to avoid counterfeiting: each note would have a universal (reverse) side depicting the world and the name of the issuing international organization entrusted with the task of designing and circulating Value Units. The opposite side would be one submitted by each local IE for its own use. There would be so many local IE designs that it would never be worthwhile to counterfeit them. They would all trade at par with each other anywhere in the world without any need for exchange rates.

A.2 Coins should ideally be designed for size and weight with vending machines in mind, as in the proposed Value Unit system, each of these coins would represent more value than similar coins do now.

B. The prices for things in Value Units shall find their own level based on natural forces of supply and demand. But what most people really want to know is something else entirely, therefore the following:

POINT 6. Exchanges for Value Units with other money will never be direct because no IE will want to hold any dollars, euros, yen, etc. because they are all debt instruments of other private businesses. Above all, every IE will ultimately be private in the sense that it will choose its own members and set rules whereby honest business is to be conducted. Besides all of this, no IE would ever want to be involved in the business of any of these banks and financial institutions.  There will arise, under rules governing such activities, financial businesses which will settle debts and gain title to property for the purposes of resale. All this business would be conducted by a separate order of institutions anyway. This means that:

A. An intermediary trading commodity is required between Value Units and all other money and it was suggested that it be gold. We would want a monetary unit that is fixed in time and value; to a standard weight in gold on a particular date. We need not concern ourselves with the specific date, as there is nothing to be gained in the long run by considering this, the long run being at least 20 years. [11/18/13: We no longer think this is correct, though it was sort of accepted by Riegel.  What we wanted was a point in time that reflected the highest possible valuation for that on which the Value Unit is initialized.  The date chosen for the blog's experiment, 11/2/11, proved to be among the highest points in gold's recent price in dollars.  Over the time since inception, the Valun has gained against all contenders for value measurement, which is exactly the position we want to keep the Valun.  Should the price of gold ever reach or exceed Valun's inception price, the inception price may be raised, never lowered, by a properly constituted International Value Exchange Society (IVES) which is to function as the sevant organization of all the IE's within the VEN.]  

B. The same considerations would apply to silver, and under the same conditions; a fixed price for silver on a specific date being equivalent to so many Value Units.

C. The same considerations may or may not be extended to other metals.

D. We understand that in an VEN, there will be those who are “red inkers” while there will be others who will want to buy their way in. The method for doing this is the exchange of gold or silver bullion.

Now, I'll let the cat out of the bag:

Since it matters not what the initial value of Riegels be in terms of gold, and since the date does not matter either [11/18/13: Yes it does as our 2 year experiment proves.], and since no one has volunteered anything to the contrary so far [11/18/13: Actually, they have, but for a variety of reasons, their suggestions are not nearly as good as the proposed one.], it is my suggestion that the Riegel's initial price in exchange for dollars be accepted as already established on 2 November 2011 at an initial price of $2,160 the oz. of gold bullion = 1,000 Value Units (I have my reasons for choosing these numbers which reflect an acceptable trade above spot paper gold prices). This makes each Value Unit worth, at inception, approximately $2.16. Doing the math from there, we have seen a fall in the price of gold in dollars since then. What does this mean? It means that hypothetically all dollars have lost purchasing power against the Value Unit since its inception and that it will cost you more dollars today than it would have at inception to buy one.  (What this means is that for each and every currency that can or would trade in gold and silver bullion, that a comparable set of figures expresses the exchange rates for them as it does for dollars in exchange for Value Units.)

Does this mean that if gold rises in dollars that it will take fewer dollars to buy Value Units? Assuredly it does. But in fair trade in Value Units, an oz. of gold bullion would still fetch 1,000 Value Units (Silver would fetch whatever its initial price in Value Units turned out to be). As long as the price of gold and silver remain below their initial prices, this feature would tend to draw more exchange into the VEN orbit and the gold and silver with it. For the “hard money” people out there, yes, the Value Unit would be “backed by gold” (or silver) if one bought one that way.  Remember we only consider money as backed by what it buys, therefore if you would buy a Value Unit with some other money, it must be paid for in gold or silver since no IE within the VEN wants to hold any of these currencies.  This in fact becomes our fence against them.

[Note 12 June 2012: : At inception $1.00 would have traded for VU .46 or 46 cends; slightly less than half a Value Unit. $100 would have bought VU 46.30 Forty-six Valuns and 30 cends. On 12 June 2012, $1.00 would have traded for VU .44 cends; $100 for VU 43.52 Forty-three Valuns and 52 cends. Over the intervening period, the most favourable exchange for dollars was 7 November 2011, within a week of inception, when the spot price of gold reached $1,794.55 and $1.00 would have purchased VU .48 cends, $100 = VU 48.08 Valuns. The lowest point so far was 28 December 2011 when the spot price for gold fell to $1,553.75, $1.00 would have traded for VU .42,  $100 for VU 41.63. The lower gold trades in dollars the fewer Value Units your dollars buy, which is as it should be. As gold rises above the inception spot price of $1,728.00, each dollar buys more Value Units. Since we do not believe that the powers that be can sustain a gold price very much above the inception price, we do not anticipate that the Value Unit will be easily placed in a disadvantageous position as regards shifts in trade and further we expect greater stability of prices over the long run, 20 years or more, as measured in Valuns than in any other form of money.

Note 14 June 2012 :  At inception, silver bullion traded at $42.24 the oz. This neat number, handy to remember, is the result of the ending spot price plus 25%. We already determined that a Valun represented $2.16 at inception, therefore 1 oz of silver would have purchased VU 19.55 and this exchange would fluctuate with rises and falls in the price of silver. Since inception, prices for silver have gone up and down and are now down with respect to inception, so as of today – 14 June 2012 – an ounce of silver would purchase VU 16.64. The same manipulated market forces influence silver as influence gold, but they do not exactly rise and fall in price together. The same factors favour Valuns when silver is below $42.24 as for gold below $2.160 per oz.

Note 06/15/12: ALL THESE FIGURES ARE APPROXIMATIONS AS NO VALUN OFFICIALLY EXISTS. The right of ANYTHING out there to call itself a Value Unit or Valun and be accepted under ANY meaningful terms of trade at the present time is not only a violation of the spirit and mutual trust that this suggestion is seriously intended, any appearance at this point in time of ANYTHING calling itself a Value Unit or Valun is completely bogus, and must be bogus because none of these suggestions has ever passed a suitable consensus, without which no meaningful business can ever take place. We also note that these “values” are greater than would normally be necessary as the premiums for trading volumes of gold and silver bullion will need to be higher to represent actual liquidity; their ability to change hands physically. ]

What we want to avoid is having the VEN swamped by whatever happens to gold and silver markets as measured in dollars, euros, yen, pounds sterling, etc. These markets are all manipulated.  But we do not see a future for any of these currencies anyway and when all is said and done, gold, silver and everything else will float in price naturally to where they belong relative to everything else; what E. C. Riegel called “Price Relativity”.

In closing, we recommend that the only valid considerations concerning the US Constitution, or any other similar body of law for that matter as concerns money, banking and finance, would be to admit, as E. C. Riegel famously has done, that the “founding fathers” were misinformed and made mistakes when drawing up the covenant which it seems future generations were somehow or in any case not willing to preserve in its original simplicity or intent. The only way forward is not backward but forward. How many times does it take for someone to suffer the same mistakes before one gets it right?

As regards public debt, public finance so called, taxes and other matters related to governments, the bases for an VEN at this point lead to a “pay unto Caesar the things that are Caesar's” conclusion, implying right away that these affairs of necessity be carried out in dollars, euros, yen, sterling, etc. and not for the time being to be conducted in Value Units, which implies that of course this would require sales of gold and silver by the VEN to raise the currencies required to cover these expenses. Much as regards governance that is currently taken for granted would then be noticed far more readily by the people.

David Burton

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