Wednesday, January 2, 2013

#17 On Monetary Theory - A Conversation

Referenced link:

This will be a response in the manner of a conversation with Christopher M. Quigley, who wrote a provocative piece on the The Market Oracle, posted on May 29, 2007 · entitled MONETARY THEORY OF E.C. RIEGEL. Mr. Quigley's words will appear in blue, mine will appear in black.

In a life spanning over 70 years, one of the greatest students of money, and its meaning, was the American E.C. Riegel. Many regarded him as a genius for his understanding of the nature and functioning of money as a human and social institution. This essay is a direct introduction to his main ideas on this subject, as, increasingly, people are beginning to realise the need for a more stable monetary unit. In essence, in his book "Flight From Inflation" he identified money as the mathematics of value and argued, that for a democracy to thrive, he believed the "money power" must be free. He basically viewed any political economic monetary system as socialist. For this reason he was at odds with Adam Smith's view of the World. Indeed, he felt that Smith in his "Wealth Of Nations" pre-empted Marx as a social theorist.

Not only are we inclined to agree, but we would regard any monetary theory that failed to address the mathematical anomalies created by usury, fractional reserve banking, central banking and government issue of money that Riegel identified, as inherently suspect. We would include the so called “Austrian school of economics” as suspect as well as the Keynesians, socialists, etc. all being products of the same ruling elite: basically if an economic theory or system fails to recognize the fraud involved in usury, private central bank issue, government issue or fractional reserve banking, etc. they are automatically discarded as worthless for much else but basic economic understandings of barter and trade relationships among traders, assuming they even get those right.

Regardless of his views, Riegel has come to be respected for his unswerving belief in mankind and his heroic efforts to champion practical freedom based on the realities of exchange systems, which are based on value.

Riegel was not one who based monetary value on measures of a commodity like gold or silver and recognized immediately that such rare commodities were susceptible to manipulation from outside the monetary system. Because this is so, their only possible ready value within a genuine Value Unit based monetary system would be as a means of exchange between Value Units and other currencies, since no genuine Independent Exchange (IE) EVER wants to be holding ANY of these currencies, which are strictly speaking the private property of fraud based businesses with which no IE wants any direct dealing. The same for the moment includes governments, although this relationship will change with the immediate needs of each community; the first governments to be considered for B membership will be local governments, always based on the number of A members who work for them.

The freedom of exchange is the foundation of all freedoms, and the freedom of exchange unencumbered is the truest democratic freedom of mankind.   

Please let this sink in, because it's true and everything including the continuance of life itself on this planet, depends on it. Deciding the issues surrounding this fundamental understanding will be the most important task facing mankind in this century, and in relative importance, nothing else even comes close.

Civilization began with exchange, and exchange began with whole barter i.e. things traded for things. The first improvement on whole barter was indirect barter. This was the practice of utilizing commodities of common use as reserves to be later traded for items of immediate need. 

Some would have us believe that we need to return to such a system, because gold and silver are said to be rare items not easily manipulated, created or destroyed. But the truth is, and history shows, that all markets are essentially local when it comes to point of sale prices and that therefore prices can be manipulated in such a system by local insertions or depletions of these precious metals as was done in the case of gold in Europe during the 16th century. Importation of gold from the New World spread a ruinous inflation which destroyed the countries that had the most gold, Spain and Portugal. During the same period financiers connived to keep silver from circulating, causing economic depressions, until usury was allowed to them.

The relative abundance of specie plus financiers willing to lend it at interest and good at conniving rulers to go to war, led to the sustained conflict, profitable to bankers, known as the Thirty Years' War, the first instance of a deliberately prolonged war that was tremendously profitable to banking and war materiel businesses, including land owners in Eastern Europe where much of the food to sustain troops on both sides was grown.

Quigley continues ...

The adoption of precious metals, such as gold and silver, developed this trend. This step reflected a growing emphasis upon facility in exchange. Accordingly, through the passage of time, a new means of completing transactions arose through the practice of depositing precious metals with goldsmiths, who in turn issued warehouse receipts. Such pieces of paper became negotiable through custom, and so purchases could be effected by their transfer.

The benefit of this practice was to facilitate trade over longer distances. The simple basis for this is that a gold coin located in London is the same as a gold coin of the same weight and minting located in Rome, One was safer taking a piece of paper from one place to another rather than the gold which could be taken up in exchange for the paper once one got to where one was intending to spend the gold back into circulation. Now, we have electronic transfer of mere digits with no backing. The issue of whether one moves or effects transfer of pieces of gold or digits from one electronic account to another does not effect local purchasing power one iota! Problems contributing to inflation or deflation arise from different quarters, of which Riegel was very much aware, as are we today.  

Acceptance of negotiable gold receipts, i.e. promises of future delivery, marked the first real step toward the utilization of money. It was at this point that barter was finally fully split into two halves, WITH THE BUYER RECEIVING VALUE AND THE SELLER RECEIVING ONLY A CLAIM.

Caps were in the original. At this point Quigley states Riegel's obvious observation that MONEY REQUIRES NOTHING TO BACK IT BUT WHAT IT BUYS. Putting that a different way, if you recognize that something you want to buy is worth how much money you want to spend for it, then the money you spent was backed by that which you decided to buy.

That way perhaps a bucket of corn meal backed some money on Monday, a basket of peaches backed some more money on Wednesday, and even that the backing based on these commodities backed more or less money during the week, depending on what? Depending on things like demand for the commodity, how perishable it is over time, etc. Specifically, the “claim”, the money with which to effect SPLIT-BARTER has NO INTRINSIC VALUE IN ITSELF which would further complicate matters. In fact Riegel postulated that whatever money was made of should be of the least intrinsic value possible.

This was the first faint glimpse of the tremendous liberating power of money. We can also see that the ideal of money is to split barter absolutely in half, without any limitations imposed upon the seller. Hence, we realise that money is a device that operates within the trading community, for that community's own self-interest.

Community self interest is something that is usually dwarfed in most people's educated consciousness these days by such ideas as national, multi-national or even international corporate or globalist self interest. A return to local focus and consciousness concerning where one buys anything and where what one buys originates is going to become increasingly necessary.

The necessity of splitting barter into halves in order to motivate trade is the motivating force: sellers want to sell and buyers want to buy with the least amount of inconvenience.

It therefore follows that ANYTHING that further complicates the use of money is going to be a detriment to its use. This actually for one reason, although there are many other issues with it as well, pretty much disqualifies bit-coin as a long term reliable alternative. [Bit-coin was recently hacked, it's built in scarcity model made it into an attractive new investment vehicle which may just have experienced a burst bubble, in which many people may have lost a lot of money.  Any solution that begins and ends on the internet is NOT a real solution.]  People the world over, regard money rightly as an appliance that effects transactions involving exchanges of value for value; a product or service for a valid and recognizable claim for a product or service of similar or comparable value.

Riegel himself said that theorists were not helpful, rather putting his ideas into practice so that people would get to appreciate the advantages of a Value Unit based Value Exchange Network (VEN) would be necessary.

IN A COMMUNITY MONEY IS ISSUED BY A BUYER. Such a money issuer, must, in exchange for the goods and services he buys from the market, place other goods or services into the market. Thus money as a money instrument is evidence of a purchase that is issued by a purchaser to the seller. Therefore, money is actually backed by the value surrendered by the seller and potentially backed by a value in the possession of the next seller.

This is the heart of the matter, it defines exactly what money is and divides those who understand the basic definition from those who continue to hold to absurd, erroneous and invidious notions of valid money requiring intrinsic value, requiring that it be issued by the state, or borrowed at interest from a central bank. Many basic facts issue from statements Quigley has made above; only a BUYER issues money. Riegel further required that buyers are primarily limited to individual human beings, excluding all organizations of any kind from the privilege of issuing money.

To print bills and mint coins is not to issue or create money. This has no more monetary significance than if you were to write a cheque and leave it in your chequebook. Instruments that have not been put into exchange are non-existent in the World of exchange and money. Money simply does not exist until it has been successfully accepted in exchange.

Something most people do not know is that since money in its simplest and truest form is merely bookkeeping entries, it functions in circuits that create money and destroy comparable amounts of money to settle claims in completing a barter exchange. Much mischief and trouble to the human race has arisen from conceptions of money that defied the simplest rules.

In theory, two factors are necessary for money creation. A buyer who issues it, and a seller who accepts it. Since the seller expects in turn to reissue the money to some other seller, it will be acknowledged that money springs from mutual interest and co-operation among traders and not from authority.

This too is an absolutely key point. While a state authority may restrict what may be traded within a limited jurisdiction, thus affecting market conditions there, no authority would be necessary or desired to complicate the simple transactions of honest free trade. In fact all such allegations to the contrary are based on arguments from authority which are all fallacious to begin with. Knowing this, it is wise to ask who then are they who support these fallacies and to what purposes? Inconvenient truths are thus uncovered.

It is a fallacy to think that a government can issue money. Money can be issued only by a buyer for himself, and he must in turn be a competitive seller to recapture it and thus complete the cycle.

This is the critical cycle of money that completes trades, settles barter, etc. between traders. When a government or in the case of the EU, a group of governments, issues money, it is the BUYER and it buys what it wants, in return it sells its services as public policy by direct spending (or it goes to war with somebody) and attempts to recover the money it has issued with taxes. But this is not freedom in the best or strict sense because the government must take back by FORCE instead of offering something people want and are willing to pay for in a competitive market for similar goods and services.

Put another and perhaps more convincing way, experience has amply demonstrated that governments do not make the best producers and providers of consumer goods, food, personal services, etc. There are basic reasons for this having to do with orders of size as effects efficiency and responsibility, the diminishing returns to scale rule, which is a law of nature and cannot be evaded. The rest of the applause for continuing the present system derives from the indefensible idolatry of the state, of political power and other aspects of human bigness. The simplest observable example of this fundamental limitation of size rule is the tremendously obese person with an insatiable appetite who becomes just too heavy and large to live under the force of gravity.

Quigley continues,

This competitive co-operation for goods and services creating value in the market is actually what makes money work.

… which also implies that the more money falls into fewer hands, the less likely that money will work doing what it is best at doing; splitting barter. The natural result of having most of the money in the fewest hands thus results in market sterility, which is a magical sounding phrase for genocide. Recall the words of the Declaration of Independence, yes that old rag Tom Jefferson, Johnny Adams and Ben Franklin knocked out that sent the high and mighty of Britain and Europe reeling. In there they speak of when a government becomes oppressive of natural rights (which are inalienable and since they are, there is no law that can rightfully apply to them). Well the same goes for money. If the few have most of it, then that money ultimately becomes worthless.

This competitive situation, in which the trader redeems his original monetary issue, through the sale of his own goods and services, assumes that the community's money will maintain its stability.

The stability of the money within a Value Unit system is assured since issuance is limited and there is always enough money to complete a transaction. In fact in future papers we'll even illustrate how this works in regard to finance, which is in plain English how to buy something you can't afford.

All enigma as to what causes money to circulate and maintain its power is thus dissolved by comprehending this natural law of money issue.

THIS LAW STATES THAT THE LEGITIMATE ISSUE OF MONEY IS CONFINED TO PERSONAL ENTERPRISERS IN THE MARKET PLACE, SINCE, THEY ALONE, BY THE LOGIC OF THEIR SITUATION, ARE ABLE ISSUERS OF VALUE. Thus, in essence: money is issued by a purchaser, but it must be issued by a purchaser who can, and is, prepared to issue value; it is a tradesman's agreement to carry on split barter among themselves.

Caps are in the original.

We see that money is the mathematics of value exchanged, based on mutual agreement. The monetary instrument is but the evidence of the consummated trade. It is a mistake to attribute purchasing power to the instrument, for it has none. It is merely the conduit through which purchasing power flows; such purchasing power lying in the commodities or values exchanged.  

We might as well boldly ask everyone at this point, why accept Value Units in trade for goods or services? The answer would be that they know where they can spend their Value Units and about how much a Value Unit can buy. If that becomes reliable knowledge, everyone will want Value Units, in fact we predict that they will demand payment in them as the other currencies become sterile, or as we would prefer saying, toxic.  

From this analysis we can deduce that commercial banks do not "lend" money. They, in fact, permit the "borrower" to issue money. Once given permission, the borrower now has the legal authorization to write cheques to the extent of the loan and tender them in trade. UPON THEIR ACCEPTANCE BY A SELLER, WHO IN FACT PROVIDES VALUE, new money has come into existence. This money remains in circulation until such time as the borrower, through becoming a seller, recaptures money with which to liquidate the loan.

Quigley does not get into it here, but we will because it is one of Riegel's key observations. The example above, which can be replicated millions of times the world over, leaves out one very important fact; the INTEREST demanded with repayment of the loan was NOT created. The borrower must pay back his loan WITH INTEREST. Where is that extra money going to come from? It is going to come from someone else in the process of trade. But sooner or later, someone will get stuck unable to pay, and then the financier steps in and takes real value for repayment of that which was never created in the first place. This practice lies at the heart of most of the evils in the world.

From the premise of the natural law of money issue, it must be accepted, that governments cannot qualify as issuers because they are not in the real situation of personal enterprisers. They cannot qualify, as they do not barter. They do not bid for money in the market place. Their taxing power relieves them entirely from selling. They take by taxing. When they are admitted to the issue power, their issue cannot be a genuine promise to deliver value in trade.

All ye statists out there, please try and let this simple fact get through your muddled brains. Their taxing power relieves them entirely from selling. Those who always look to the state to save them do not reckon with the government's use of FORCE, believing all sorts of weird and wonderful fables that of course the government would never do anything disagreeable to them or that their support of the collectivist monster is to benefit humanity at large, its evolutionary prospects or whatever. This play of selflessness is frankly quite nauseating! But being aware of it is at least half the battle to stay awake. Of government issued money, Bill Still and others kindly take note, Quigley continues,

It must, of necessity, be counterfeit, regardless of any statutory laws intended to validate it. From this failure to discriminate between money issued through bank credit by personal enterprisers and by governments, has come an inflationary mixture of true and false money that will eventually threaten social order. Money cannot be issued in perpetuity by man-made laws; it operates by its own natural law. To ignore this law invites uncontrolled inflation.

The destructive force of inflation is not confined to its covert taxing power. This is only its early manifestation. Its later destructiveness lies in its power to amend, and finally, to nullify the contractual relationship upon which the social order depends.

The whole philosophy of freedom is encompassed in the single phrase; POWER TO CONTRACT. While a small distortion of the unit of account impairs contracts previously written, a consistent inflation actually destroys all existing contracts and prevents the making of new ones.

Quigley is underlining Riegel here. As more people wake up to the realities of the present monetary situation under which they live, there will be fewer and fewer contracts made that will have any meaning until all basic respect is lost for an incompetent, arbitrary, inefficient and irresponsible order, itself based on FRAUD but empowered by FORCE. It will concern those doing the FORCING too as they must be paid in something or they would prefer to stay home.

Adam Smith in his political economy allocated the money power to the state, thus he ante-ceded Marx as a socialist. It is his followers, unconscious socialists, and not those of Marx, who constitute the greatest peril to the order of free exchange. The Smith philosophy is taught in all the schools and colleges. Students become indoctrinated by this ideology unaware that in its monetary concept it is contrary to the true philosophy of personal enterprise and individuality. 

Thank-you, we couldn't have said it better. You can now just chuck anything that involves money being issued by a state, hear that Bill Still? as worthless.

An unnatural monetary system begets unnatural economic manifestations. How can a free economy work with the monetary system socialised?

It can't and ultimately wont ...

Rampant inflation makes a mockery of any true accounting for any true contract. When the future businessman discovers that his pride in cash was a delusion and a snare; that his cash reserves, which he meant to freeze have melted and evaporated; that his balances might have been preserved if they had been cast into materials; that his bonds and money claims on others have shrunken and that he might have profited had he known enough to get into debt; that his tax refunds are far less in power than those paid in; that he must pay capital gain taxes on what are actually losses; then that businessman will realise that the whole contemporary inflationary accounting picture is a delusion.

Read it again if you didn't get it. 

1. Cash is only good if it RETAINS ITS VALUE in future trades. It also follows of course that paying anything on idle cash, interest bearing savings accounts, etc. are just more foolishness, and as we have pointed out previously are not even legitimate since again they are paid out of that which was not created.

2. Bonds and money claims on others are promises to pay on which the whole present system operates. Promises to pay? How about actually paying? How about actually producing? How about clearing transactions so they don't stick around? We'll consider these questions in a future paper on the nature of markets.

3. Tax refunds are getting your own money back later when it is worth less; has less purchasing power. What a deal! Wake up, you're being cheated! 

4. Capital gains taxes, another attempt by FORCE to get back what it had previously issued by FORCE, whether “in the public interest” or not, Mr. Still. As a businessman, if your expenses were higher than your gains, you fall out of the “musical chairs” economy and may have nowhere else to go but to the government to get a handout to survive. Those at the top or more correctly behind the scenes of course could care less. They have all the money they'll ever need … and they want still more.

Quigley continues,

If money is issued under the natural law of issue, unit stability will be in evidence. Under natural law, if exchange plays no tricks on us, we are all really working for ourselves. We will all be interested in stability. In reality we are all buying for ourselves; we are all selling for ourselves. But just exactly what is it we are buying and selling? In the final analysis, it is simply human energy, mental and physical. Labour is the basic, or virgin, commodity. It has no quality of obsolescence, for it is always associated with the latest, and therefore, the timeliest products. IT IS THE ONLY VALUE.

Others have comprehended this, from the premise that all value is labour and since money is based on value, they have reached the correct conclusion that money must be, in actual fact, labour. However, the fatal error that labour money planners have made is that they set a measure of labour, such as an hour, as a unit of value. While it is true that labour, both physical and mental is the only value, and therefore, the sole commodity that passes through exchange, IT DOES NOT FOLLOW THAT ALL LABOUR IS OF EQUAL VALUE. Labour may be so unintelligently applied that it is completely worthless. We are all labourers, and therefore, fountains of wealth because we all emit human energy. We must, however, direct that energy to meet the demands of our fellow labourers. By the measure to which we successfully respond to this demand will our energy be valued. Money is not a measure of value, it is a method of stating a value that has already been determined through exchange.

Yes indeed, so Marx was right but could not conceive of it properly; human labour is the measure of all things, except that you must allow money to measure it rather than say an hour worked, because your hour worked and mine might be quite different. An hour of brain surgery or flying a passenger aircraft might rate higher than an hour of operating a financial business or an IE or an hour of teaching something or an hour of a farmer's time, etc. The key point is that absolutely no collectivist scheme or statist model can ever hope to successfully control any of this without invariably being factors contributing to genocide. It really can't be put more simply than that, which is why settling matters concerning money and its future are THE fundamental issues of the 21st century.

If money is ultimately the mathematics of value set by exchange, what is value? VALUE IS THE RELATIONSHIP OF DESIRE. It is arrived at in the mind by comparing one thing with another. Thus what actually takes place in trading is the determination of values and this mental process is the act of "moneyizing". It is a mathematical process. As the act of "moneyizing" is psychological, so the act of "monetizing" is material. It should also be noted that both arise out of and do not ante-cede, exchange. Trade produces money; money cannot produce or induce trade. TRADE, LIKE MONEY, IS A SOCIAL PHENOMENON BASED ON MUTUAL CO-OPERATION AND INTEREST.

In conclusion, value, mathematically compared, is money. The purpose of the medium is to achieve split barter and to allow the monetary unit of exchange to be universally accepted for any good or service. The discovery of the power of money as a social mechanism has freed mankind and has been immensely influential in the development of society and civilization. Its importance cannot be over emphasized. 

Repeat … Money's importance cannot be over emphasized. Those who postulate some system where there is no money condemn us to return to terms of absolute barter which quite simply cannot be tolerated. So just as we will have trade, we will have markets and we will need money. The question isn't even what money would look like or how it would work as all those things are pretty much known already. The question relates to who gets to issue money and once that is resolved in favour of each and every human being on the face of the earth, denying it forever to banks, governments or other institutions, humanity will be on to a better world for everyone, not just a few.

Quigley continues and reaches his conclusion, 

However since 1909 the influence of government policy, both national and international, has steadily brought about monetary debasement. Should the level of inflation currently in place be allowed to continue, sound money will be driven out by bad "fiat" legal tender. This problem will only be resolved when our leaders come to terms with the realization that there is a natural law governing the issuance of media of exchange, and if this law continues to be broken by socialist ideology, the very bedrock of the western tradition of freedom and individuality will be broken.

The Heather Foundation
Los Angeles, California.

© 2007 Christopher M. Quigley, B.Sc., M.M.I.I., M.A.

Christopher M. Quigley, B.Sc., M.M.I.I., M.A.
Dublin, Ireland

We might maintain that the western tradition of freedom and individuality is largely already broken, bred and educated out of us for the agenda of the elites. Those reading this blog may be regarded as a vanguard against but the latest tyranny (as there have been many attempts before this). Tyrannies, even those which succeed eventually come to an end. In the past they usually have gotten away with it for many hundreds of years, but times and conditions are quite different now. A word to the wise: those who understand and get themselves prepared to participate in the only monetary system that will be worthy of survival, since it is based on the most obvious, basic and local facts, will be tomorrow's community leaders, whether or not they hold elective political office. Those who were too wrapped up in the present system may have a much harder time to adjust. After all, they too will have to ask themselves on what they really wish to find value in themselves in which to trade within their local communities.

David Burton


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