V
MONEY
MASTERY
THE
ASSERTION OF MAN'S INHERENT MONEY POWER AND
THE
DENIAL OF POLITICAL MONEY POWER
To
criticize the political money system is not enough. Our study must
have a constructive end; and this requires money mastery. Let us
approach the subject through the economic sequence that developed the
need for money.
Man
has learned that he can maintain a bare but precarious existance if
he devotes his thought and labor to garnering or producing only those
things that he consumes. To rise above this level of life he must
become efficient in some occupation that produces exchangeable
wealth. This specialization of labor could yield no profit unless
there be other men who likewise specialize; and it is further
necessary that they meet to exchange their products. This implies a
meeting or market place. Thus we see that three attitudes are basic
to man's rise and continued progress, to wit: (a) the profit motive,
(b) specialization of labor to gratify the profit motive, and (c)
exchange to realize the profit.
The
profit, or progress motive presses man toward means of greater
production and he finds it in specialization of labor. Greater
production necessitates more exchange to realize the profit; and thus
exchange becomes the neck of the bottle of production and
consumption. Exchange, then, is the measure of human progress and
limits or expands production because production (beyond subsistance)
is purposeless without it. Therefore man can be only as wealthy as
his exchange is facile.
It
is interesting to observe that trade continued for many centuries as
a purely private affair based upon mutual interest and understanding
among tradesmen. While it was subject to robbery and tribute and tax
imposition, the idea of the state regulating it or issuing
certificates of permission did not occur to any one. The tradesman's
conception of trade was that it rested merely upon the mutual
advantage of both traders and subject to the hazards of banditry. The
political factor did not enter. This free and self-reliant attitude
was lost when money became an instrument of state power. With the
progress of time, trade psychology has become more and more enslaved
by the superstition that trade by money must be state regulated and
permitted.
This
false attitude has come about because man has not understood money;
and has believed that, in passing from representative barter exchange
into money exchange, he was passing from barter to a higher plane,
where, by political magic, there was conferred upon him a power that
he could not exert without the sanction of the state. In truth, trade
has not risen, and cannot rise, above barter - because it is
inconceivable that one trader will surrender value without being
assured of receiving value. Through money, barter has been merely
improved by introducing a time lag between the surrender of value and
the requisition of value, during which lag the money instrument
certifies the right of the seller to make the requisition at his
pleasure upon one or more traders in the trading community. The money
instrument acquires no value, the value resides solely in the thing
or things to re-requisitioned.
To
believe in a metallic or other "standard" or identify money
with any commodity or "backing" or "coverage" or
"reserve" or to attribute value to it is to confess
inability to master the money concept. The money concept is a concept
in accountancy and is as abstract from value as mathematics. Money is
the mathematics of value and is valueless in the same sense that
mathematics is valueless. No amount of value can create money, but
when men form a compact to trade with each other by means of
accounting, in terms of a value unit, a money system is formed, and
money springs into existence when any of them, by means of the act of
paying for a purchase, incurs a debit in the accounting system.
Conversely, money is destroyed by the process of selling in which a
credit is earned against the previously incurred debit. Yet value is
neither created nor destroyed by the process of creating and
destroying money because money is but a concept.
Every
lawyer knows when he draws a contract that the real contract exists
in the minds of the contracting parties and that the paper and ink
are but the evidence of the contract. Likewise, the substance of
money is a tradesmen's agreement to carry on split barter. The money
instrument is but the evidence and accounting device for split
barter, consummated under the tradesmen's agreement.
To
be sure, the unit in which it expresses itself involves a special
concept; but this concept is in no wise related to the state or
politics. It involves no legislation; no executive power; no judicial
power of the state. It is but the conception of value abstracted from
image, and cast into mathematical relativity. In simple or whole
barter we evaluate things by comparing them with each other; and
rarity and desirability (the law of supply and demand) influences us
in valuing things high or low. It is not necessary in simple barter
to realize that all values are multiples of a common denominator
which is the minimum unit. In money exchange it is necessary for us
to comprehend this before we can master money and determine a unit
which permits us to mathematize value.
It
is not, however, necessary for us to isolate the minimum unit of
value any more than it is to find the smallest physical unit before
we understand physics. We need only to know that there is a unit that
is the lowest value and that all values are some multiple of that
unit. Nor can we conceive of a multiple of the indeterminate lowest
value unit except in some physical form and then the multiple is also
indeterminate. For practical exchange purposes we must have some
valuable object, which contains an indeterminate number of the
indeterminate minimum value units, and accept it as our money unit.
We
must also realize that there is a maximum value; and this value is
life itself, the most comprehensive conception of value that the mind
is able to conceive. Between the minimum value unit and the maximum,
all values range in relativity. As life becomes invested with more
objects of value, each holds a smaller number of the minimum value
unit, but the sum total of value of all objects is the same; it is
life. Value units are invested in, or divested from, all objects by
the minds of men reacting on each other and producing what we call
the market price.
It
is essential to understand that objectivised value has no fixity, but
is constantly in flux under the operation of the law of supply and
demand. But, while all objects gain or lose in value, no value is
lost; because, under the very concept of value relativity, value that
escapes from one object must invest itself in one or more others -
and the total remains the same. Understanding the fluidity of value,
we will not, of course, manifest the folly of trying to find or
create an object of fixed value to adopt as a money unit. Let us now
pursue the subject by example.
A
HYPOTHETICAL EXCHANGE
We
will imagine a group of tradesmen joining together to develop a money
unit and a money system. They meet at the market place and bring
their commodities. Trading is a process of value relativity and this
requires a positive pole. When the pole is determined, it becomes the
figure one; and thereafter value relativity may operate
mathematically. Any one of the commodities in the market could serve
as the pole or figure one. We will arbitrarily name the sheep as the
trading unit and assume the following table of value relatives.
sheep
1
barrow
of sand .10
pair
of shoes .50
trousers
1
harness
2
chicken
.10
bushel
of wheat .20
bushel
of corn .10
cow
3
horse
5
candle
.01
hog
1
ounce
of gold 5
ounce
of silver .50
-----------------
[total]
19.51
One
each of all the commodities in this imagined universe of values total
19.51 units or 19.51 times the unit which is the sheep. We will now
assume that the same traders bring the same commodities the next
trading day and of course in the meantime the law of supply and
demand has been operating and values have changed and they range
thus:
sheep
1.10
barrow
of sand .10
pair
of shoes .40
trousers
1.10
harness
2.00
chicken
.10
bushel
of wheat .18
bushel
of corn .11
cow
2.75
horse
5.25
candle
.01
hog
.91
ounce
of gold 4.90
ounce
of silver .60
-----------------
[total]
19.51
Our
universe of values has not changed in total; but the relativity has
altered. What was lost by one commodity was picked up by another and
this illustrates that nothing is lost and nothing is gained in the
sum total - which is life - but some things make up a greater part of
the whol and some things lesser. Had we introduced in this
hypothetical universe of values, one or more new commodities on the
second day or dropped one or more as worthless, the same total of
value units would be had. The multiplication of each item by the
total supply of that item would make no difference as the supply or
scarcity of each is reflected in the price as shown. That, in fact,
is what makes the price and the price changes.
But
what has become of the unit? Has it changed? Not at all. The unit is
not the sheep but the value of the sheep at the time it was adopted
as the unit. This demonstrates that while we can initiate a unit only
by visualizing some object of value, we cannot freeze that sum of
value in that object; since it, like every other object, is in
constant value flux under the law of supply and demand.
The
unit, once it is adopted, is like a keynote to the orchestra of trade
and loses all identity with the object with which it was identified
at the outset. This liberation of the unit from the concrete to the
abstract is the most difficult concept in the money science; and it
is because of its non-comprehension that the standard or fixed value
idea has been projected and has almost universally deluded the
academic world. The gold standard is stoutly defended by economists
and bankers who cannot master the concept of an abstract value unit -
and therefore cling in desperation to the standard or fixed value
idea, which is an illusion. The common man, on whose mental attitude
the whole money practice depends, knows nothing and cares nothing
about the fiction known as the standard, because he is not called
upon to explain money. It is the so-called thinkers and teachers who
thought up the standard idea - because it alibis for their lack of
comprehension of the abstract value concept.
NO
COMMODITY STANDARD
There
is, of course, no commodity standard; because the law of supply and
demand cannot be suspended in favor of any commodity. Price pegging
of a commodity such as gold or silver can prevent price variation,
and this gives the appearance of stability, but it cannot peg value.
In the foregoing list of commodities we have included gold and
silver; and, in the second market day example, have shown both to
have varied in price. To give the illusion of stability to gold or
silver, or any other commodity, it is necessary for some power to
make a market for it at a price above its actual value; and thus they
seem not to vary. But pegged price is not value. Such a delusive
scheme is not possible in a private money system because no private
trader would be strong enough to support it; and of course, there is
no purpose in it if no one is to be fooled. It is part of the window
dressing of the delusive political money system; and can be
perpetrated only by a government - since, under the political money
system, governments have an endless supply of money to waste on such
make-believe.
The
whole "standard" idea is concocted under the mistaken
belief that the issuer of money is the backer, whereas in reality, it
is the seller who backs money. To issue money is the function of the
buyer; to back it is the function of the seller - the only one who
puts value back of it. The people, by accepting money, have always
backed it. The government has merely requisitioned it through taxes,
which is the only way it has of retrieving its issue.
In
our hypothetical money exchange nothing has, as yet, been said of
money instruments, and, before we go into that, it is well to realize
that the money concept must come before the money instrument; and
that there may be an actual money exchange without instruments. When
traders are able to evaluate things in terms of an abstract
mathematical unit, they have conceived money; and may carry on money
exchange without record or instruments. Of course, this is not
feasible to any great extent; but we should understand that money,
first of all, is a concept; and that bookkeeping and instrumentation
that follows is but the record of transactions consummated in the
concept.
If
a farmer approaches the village storekeeper with the question; "What
are you giving for eggs?" and the store-keeper answers, " a
peck of corn or three yards of calico," the trading is on a
whole barter basis. But if the answer is, "30 cents" the
trading is on a money or split barter basis. A deal may be struck
whereby the farmer turns over 5 dozen eggs and gets credit on the
dealer's books for $1.50 – against which he orders merchandise -
and this method may continue indefinitely without a single money
instrument passing between them, and yet these transactions would be
perfect money transactions. They would constitute trading by means of
money simply because the traders were able to state prices in terms
of an abstract value unit. It is important for us to realize that the
sum of money instruments used in trade is far from coextensive with
the sum of money transactions. Offsetting items are common in
business, thus reducing the need for money instruments to settle
balances.
FOUNTAIN
PEN MONEY
Let
us assume that our hypothetical community of traders – finding the
need for instrumenting their exchange with money instruments - hire a
bookkeeper to keep track of their transactions. Each member of the
exchange might receive some blank pieces of paper on which he directs
the bookkeeper to debit his account, and credit the account of the
seller, a specified number of money units or fractions. Nothing need
be deposited with the bookkeeper to authorize such orders; and this
implies that the traders would be authorized to start the exchange
with a bookkeeping debit or over-draft. Let us pause now to realize
that money can spring only from a debit and not from a credit, thus
showing that the basis of money is a pledge to surrender value on
demand - a pledge which, as we shall see later, is a mutual or
compound pledge, and not a private debt and which, incidentally a
government is not competent to make, because it is not able to redeem
it.
If
we assume that in a trading day in the hypothetical exchange buyers
issued checks in the sum of 950 units; and that each trader deposited
his checks with the bookkeeper, the bookkeeper would have 950 units
as a total bookkeeping entry but - let us also assume that as he
entered them on the accounts of the traders, the offsets showed a net
debit of only 50 units to the accounts of those who overbought and
the same amount as credits to the accounts of those who under bought.
Therefore the actual amount of money in existence at the end of
clearance is only 50 units; whereas money transactions to the extent
of 910 units have taken place. It is even conceivable that there
might remain no debit balance; and hence no money whatever in
existence in spite of a healthy money exchange. Money is created by
the process of incurring a debit and is destroyed by the process of
offsetting a debit.
This
demonstrates that the volume of money extant has no relation to the
volume of business transacted in its name. The volume of money extant
is determined by the amount of deferred spending or "savings"
that exists. In the example, those traders with credit balances have
a claim upon values held by other traders and these traders who have
debit balances are the money issuers and have proclaimed thereby
their obligation to other traders. This demonstrates that money,
whether evidenced by a bookkeeping record or by currency, is but a
medium of evidencing barter balances - and, since it never equals the
values that were negotiated in its concept, it is absurd to think of
it as having value. Also, it is absurd to think of a reserve or store
of value which backs or supports the money extant. It is a claim upon
no particular goods and no particular trader but upon any goods in
the hands of any trader. In that sense only, is there a store of
value back of money instruments, extant and potential. All efforts by
ignorant money planners to particularize money, by setting up
"redemption funds" and "guaranteeing authorities"
are therefore contrary to the real and only purpose of money - which
is to enable trade to escape particularization, and to enter into
generalization.
The
essence of money exchange is a traders' pact to issue money for
purchases from any trader and to accept for sales to any trader –
not at any fixed prices, but at prices made by the current operation
of the law of supply and demand.
INTRODUCING
CURRENCY
To
comprehend the use of currency instead of checks in the trading
example, we need but visualize a piece of paper or coin, with
appropriate legend, requiring no signature by the bearer or identity
of the issuer and supplied by the bookkeeper in exchange for a
trader's check. The bookkeeper would debit the account of the
currency recipient the amount of his check and would credit the
account of any trader who turned back the currency. Since the
currency could be obtained only by writing a check for it, it would
be as much a creation of the check writer as the check. It is thus
impossible for money to issue, whether in check or currency form,
except by a buyer and the actual issue takes place only in the act of
paying.
It
will be observed that in our imagined exchange no outside factor has
entered; and it is impossible to see how any should enter, or could
supply any element lacking by the traders themselves. They have all
the values that are traded. They have all the needs that are to be
supplied. They have all the powers to form a pact that affects solely
their own interests. They take nothing from any one. They interfere
with no one's rights. Their trading practices cannot possibly have
any adverse affect upon any one except those who are denied thereby
an opportunity to exploit them. To be sure, they must establish rules
of practice for their exchange; but this too they are competent to do
without outside assistance.
The
most essential rule they must establish is the determination of the
debit or money creating limit for each member. Debit power or
money-creating power is the very energy or life blood of the system;
and to restrict it unduly would be adverse to all. On the other hand,
to distort it by permitting it excessively to some and insufficiently
to others would cause maladies. This problem is dealt with in detail
in Study No. 7.
Deferring
for later consideration the determination of the amount of the money
creating power or debit limit to be authorized to each participant in
a money exchange, we will now consider the qualifications for such
participation. There are two classes of participants in a money
exchange. Any person who accepts money, becomes automatically, a
participant in the exchange that authorized the money. He acquires
thereby the power to requisition value from another participant by
merely transferring the money which he has received. Such participant
requires no formal membership or further qualification. This class of
participants we will call credit power participants. The credit power
participant (called Class B in Study No. 9) can buy only after he has
first acquired money by selling. He has not the power to create
money.
The
other class of participants are those who have formally qualified for
membership in the exchange and secured thereby the power to buy
before selling or in other words, command debit or over-draft power.
These participants are the money creators and we will call them debit
power members. (called Class A in Study No. 9) To determine the
qualification for such participants we must understand the pact with
which they establish the money exchange.
The
money pact is a mutual pledge of competitive
traders to buy and sell in terms of an abstract
value unit, and to issue money instruments in terms of such unit
within prescribed limits, and to accept such instruments issued by
any member of the pact for value at competitive prices.
Competitive
traders are put, by competition, on an equality of discipline, which
makes them ideal participants in a money exchange as debit power
members, because each sees to it that no money is issued except for
value received - and no one is enabled to force a price upon another
that is not the result of free competition. Thus every money unit
issued is backed by actual exchange value; and the unit and the price
level remain stable. The disciplinary control of competition
qualifies competing traders, as responsible parties, to enter, with
others similarly disciplined, into a money pact.
Any
trader who, by reason of political grant, is freed from competition
is not a desirable participant in a money exchange because he is in
position to force money to be issued above the actual free exchange
value of his product. This introduces an inflationary element in
exchange which tends to raise the whole price level, or, in other
words, to alter the power of the unit.
GOVERNMENT
DOES NOT QUALIFY
Any
monopolist is a disturbing factor in exchange and the worst type of
monopoly is political government. Government is a public non-profit
enterprise; money is an agency inherently devoted to private profit
enterprise and free exchange. Government has no competitive
restraints; it does not sell its service by inducement. It makes no
over-the-counter bid for its issue. It merely levies upon the wealth
of the community without regard to the value, or any means of
determining the value, of its services. It has no free exchange
method of backing its money issue and lacking that, it is not
qualified to issue.
Governments
are operated by fallible men who are not individually responsible for
their acts, as are men in private life. The reaction from their false
action falls upon the citizen and not upon the officials. The
paternalism that the political money system has permitted government
to affect is the reverse of the truth. The citizen is father and the
government is child. The citizens must nurture and discipline
government and their exclusive control of the money system is the
essential implement therefore. To lose it is to lose sovereignty. A
government with money power can free itself from citizen control, and
pervert the economy by injecting into it unbacked money.
The
cost of government must be borne by private enterprise but government
can and should be denied the power to insinuate the cost into the
price of commodities and the cost of living. It can and should be
obliged to present its costs openly and obviously, so that it will
excite the resistance that any excess may justify. To permit
government the money creating power is to enable it through an
unbalanced budget to increase the cost of living and deceive the
citizenry on the actual cost of government and thus free itself from
citizen control. It must, therefore, be confined to the status of a
credit power participant in exchange. In other words, before it can
spend money, it must collect it from the sum already created by the
citizens. It must be unable to create money by the debit power which
power must be confined to private enterprisers. This compels it to
maintain a balanced budget and protects the economy against
inflation, which is its worst enemy, and assures the citizen
economical and responsible public service.
Thus
we see that money mastery means not only economic mastery but also
political mastery. It reserves to the citizen-trader the essential
part of his sovereignty, and brings both government and business
under democratic control.
The
proposed exclusion of government from money creating power is stated
as an ideal and does not imply that a private money system cannot
operate without this as a condition. A private money system will
probably have to begin while the political money system is operating;
and therefore, the extent of the participation of the state in the
private money system will probably not be a question at the outset.
Nor does the principle of the governmental non-participation in debit
power imply that such participation is ruinous to a private money
system. It is perversive, but all money systems in the history of
money have been perversive and money systems will operate, no matter
how perversive, because a money system of some sort is indispensable
and trade will use any system in the absence of a better one.
In
conclusion it is perhaps appropriate to define money, and contrast
our definition with the orthodox definition or description. The word
money has two meanings:
(a)
a concept of abstract value as a unit of computation. (b) an
instrument expressing, in some numeral of the unit of computation, a
consummated half barter transaction and involving traders in a pact
to accept it in exchange for a value equivalent to that which it
mediated in the previous exchange.*
*Trading
by means of money may be practiced in the concept (a) and under the
pact stated in (b) by means of mental or written record and without
the use of negotiable or transferable instruments.
The
conventional "definition" of money is as follows:
Money
is a medium of exchange; a measure of value; a store of value; and, a
standard of value.
This
is a statement of four functions that money is supposed to fulfill,
in the confused orthodox concept.
MEDIUM
of EXCHANGE. This is so broad that it conveys no comprehension. A
vehicle, a memorandum, an agent, a verbal intercourse, etc. are media
of exchange. If we say "a medium of split barter," the
statement becomes definitive, because only money can serve this
purpose. The word "exchange" includes whole barter, (in
which a commodity and not money could act as a medium) as well as
split barter.
MEASURE
of VALUE. Money is not a measure of value. Value can be measured only
by value and money has no part in the process of evaluation. Having
no value, it is not a criterion of value. Money is merely a means of
expressing value after it has been determined. Money (the concept) is
the language tool of split barter. Money (the instrument) is the
evidence of a consummated split barter in the sum of the unit.
STORE
of VALUE. This apparently relates to the instrument or record of
money credits. To say that it is a claim on value is the nearest
concession we can make to the statement. The value that the money
instrument or money record holds a claim upon, is in hands other than
the money holder and is not stored, pledged or in any way identified,
end the extent of its claim thereon is dependent upon the fidelity of
the money system. If "store of value" refers to the
intrinsic value of coins it is also false. For instance, if a silver
dollar contains 36 cts worth of silver, the coin is 64% money and 36%
commodity.
STANDARD
of VALUE. This approximates "measure of value," but is an
effort to capture some of the superstitious quality that attaches to
the idea that money rests upon a standard commodity.
These
"definitions" are part of the arsenal of abracadabra that
help to confound the student and obscure the teacher's ignorance of
the subject of money. The two meanings of the word money, the concept
and the instrument or record, are indiscriminately mixed in this
parrot jargon.
The
four cardinal truths of money practice are: The Purpose of Money, The
Source of Money, The Backing of Money, and The Democracy of Money.
THE
PURPOSE of MONEY is to facilitate barter by splitting each
transaction in halves, obviating the delivery of value by one trader
(the buyer) and permitting the other trader (the seller) to make
requisition for his half upon any trader at any time. This is the
sole purpose of money. Any effort to employ it to influence prices or
control trade is perversive.
THE
SOURCE of MONEY is the trader (the buyer) who receives his half of
the barter. Since it arises out of the buying process, and is based
upon the evaluation of the acquired value made by the buyer, it is
obvious that it can have no other source, and is created only by the
act of paying for a purchase.
THE
BACKING of MONEY. Money is given its material backing by the seller
through acceptance in exchange for value. Its moral backing is the
buyer's pledge to accept it for equivalent value in free exchange.
THE
DEMOCRACY of MONEY. Since trade is democratic, and since money is an
instrument for facilitating trade, and since it can arise only from a
trader in the act of buying, and be backed only by a trader in the
act of selling, it is obvious that money is an instrument of
democracy and the essence of man's sovereignty over business and
government.
JOINING
PRODUCING POWER AND MONEY POWER
These
declarations involve a complete revolution in the rationalizing of
money. For the first time the source of wealth and the source of
money are seen to be identical. Heretofore, economics has located the
source of production at one point and the source of money at another,
with the result that synchronization and balancing of issue between
wealth producing power and money power were impossible. Under the
valun concept, the two are united, synchronized and made coextensive
so that there is never shortage, never surplus and never lag. The
individual thus conveys his services with one hand and requisitions
his fellow worker's product in equal measure with the other, keeping
production and consumption ever in balance at the highest level. This
guarantee of mass distribution and consumption is the perfecting
factor in the American system of mass production.
The
old concept of money is that the worker must first get the consent of
a power outside himself before he can requisition value. Thus his
purchasing power is restricted and this, in turn, reacts on his
selling power and this limits his productive power. In other words,
the old method, by limiting buying power necessitated reduction of
producing power and defeated mass production, while the new concept
permits buying up to the capacity to produce.
There
is no purpose in increasing mans capacity to produce, if his capacity
to consume is not commensurately increased. As explained in Study No.
7, each of us is his own customer. Every man must buy all he
produces, or surpluses develop at some places and scarcities at other
places, throwing the economy out of balance. Therefore it is not only
the right, but the duty of every man to buy the products and services
of others up to the value of his own production. If this is
accomplished, our scientific men may develop the mass production
technique to the ultimate. If it is not accomplished, they are
stymied.
If
we can coordinate consumption with production we may develop our mass
production to the point where the fullness of production will itself
bring about the diminishment of hours of labor, the abolishment of
child labor and the labor of the aged, and give us less work and more
leisure, until the ideal balance between work and leisure is
attained. That our production engineers can do their part in this
aim, there can no longer be any doubt. The only question is: will we
master money as they have mastered production? If we do not, we
defeat them and thwart the attainment of this great social aim and
the vindication of the private enterprise system.
THE
SURPRISE WEAPON
Society
is in the twilight of a passing day. The state now undertakes to
finance the economy, and, since a free economy is manifestly
impossible where the state assumes the responsibility of supplying
the money circulation, the politician is compelled to choose between
fascism and communism. Under either choice liberty is abolished and
the people are enslaved. As the planners all over the world adopt
their devices for a managed economy, and ideologists and sloganizers
prepare their implements to condition the minds of men to their
control plans, and the cause of human freedom seems defenseless,
there falls into the hands of the people a surprise weapon that will
turn the tide of battle and give the people mastery, not only over
their private affairs, but, over the would-be political planners.
This weapon is the people's money power as defined in the following
pages. It will change the whole course of human events into the paths
of liberty, prosperity and peace.
THE
VALUN PRIVATE ENTERPRISE MONEY SYSTEM, being nonpolitical, has no
nationality or boundaries. It is therefore naturally a universal
money system, though it may begin in a local trading area anywhere
and extend anywhere regardless of political boundaries. It offers,
therefore, a new basis for the international union of peoples on the
economic plane quite independent of their political differences.
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