Monday, February 17, 2014

#54 This Blog's Valun Proposal

Throughout the numbered papers of this blog, there is presented but one consistent proposal, based on the works of E. C. Riegel, but updated to reflect subsequent history and geopolitical realities. The central focus of that proposal is the Value Unit (Valun) itself. Riegel originally proposed that the Value Unit would be based on the value of a US dollar on a particular date. Since his time, for a variety of reasons, the choice of the US dollar is no longer acceptable. US dollars (or any other national or surpra-national currency, for that matter) are herewith rejected as a basis for Valuns!
Therefore another basis was sought and among most people sampled, who of course had no idea of Riegel's clear observation that money is never “backed” by anything other than what it buys, they nevertheless chose precious metals by a wide margin.

Of course, what Riegel imagined would happen quickly turned out to take seventy years, but the results are the same; the 1950 US dollar bought $9.75 in today's money. Inflation, as Riegel says, is entirely due to government spending deficits over tax revenues, with which observation we concur. Therefore, concerning only a Value Unit based economy, before going forward, I want it thoroughly understood that however much money (quantity of money) may be in the hands of individuals out in the economy at any particular time, would make no difference to prices and would not ever over time; prices, as Riegel said, would seek their own levels relative to each other in a free market, and we have also suggested that the freest of such markets are full settlement on purchase “black markets,” which exist without debt, which is why we describe them as black. By contrast, all other markets are red; they allow the settlement of an exchange to lapse over time. Such markets are influenced by debt and debt financing, which most certainly must be determined to function within a Valun Exchange Network (VEN); our chosen name for a private market using Value Units as money.  [1/26/15: Since our feature series on Arthur Kitson's great work, we have come to some realizations concerning the nature of money, chief among them being that all money is a representation (evidence) of debt. That applies to even money tokens made out of precious metals or bitcoin. This also means that all transactions are not settled until they are paid off in goods and services, not money. What this implies is that all transactions are always barter. This changes a number of things including whether any other money created by fiat of states or banks is real debt or faked debt. If faked debt, then the demand that goods or services be provided for said money becomes spurious, and if spurious, then as the saying goes, the music stops when someone says, “I'm sorry, but I will no longer accept your money.”]

Whether we had used a dollar, a euro, some yen, whatever, as a basis for our proposed Value Unit, since they all invariably inflate, we would have chosen a date that was as close to the lowest point in a contemporary series (within say 5 years) and then adopted various indexes to determine variance from that original point; a value on a particular date chosen as Value Unit inception. These variances would of course determine what the Value Unit would trade for in terms of dollars (or other currencies) on a day to day basis. That's a question everyone asks and wants to know and of course it is a perfectly valid one; what is the purchasing power of one unit vs. another? They usually ask what a Value Unit is worth in dollars.

It is customary to believe that the daily value of money can be determined based on its quantity (money as a commodity) subject to availability (demand) and that further this demand can be determined by credit expansion (and contraction). But Riegel's clear observation of a Value Unit as a particular transaction at the date of its inception stands athwart the entire “money as commodity” concept. It literally defeats it. This is Riegel's understanding; that the Value Unit is always and everywhere whatever it takes to accomplish the purchasing power of the initial transaction chosen to represent it.

The proposed Value Unit of this blog is one one-thousandth of the price of a troy ounce of common (non-numismatic) gold bullion at the end of business on November 2, 2011, which is determined to be $2.16. A Value Unit shall never fall below this price. (An ounce of silver was capable of trading for 19.44 Value Units on the day of inception) But today, you'd have to pay $2.68 in fair trade for one Value Unit. Why? Because gold (silver) doesn't buy as much as it did at Valun inception. The rest, whatever it takes to accomplish the purchasing power of the initial transaction, determines the extra value in dollars required to make up the difference. Said another way, the purchasing power of the proposed Valuns has increased by 24% since inception.
The Proposed Value Unit from inception, showing the relationship of an oz. of gold bullion in US dollars
[2/21/14: The bars on this chart represent the equivalent in purchasing power across time from inception and the amounts of that purchasing power to be represented as gold and in green, the extra dollars required to make up the difference.]

At inception, 1,000 Value Units = 1 troy oz. gold bullion on 2 November, 2011, an easy day to remember. On that date, 1 troy oz. silver bullion converts to 19.44 Value Units. On 15 February, 2014, 1 troy oz. gold bullion = 758.63 Value Units and 1 troy oz. silver bullion = 12.36 Value Units. This folks is where the commodity meets the fixed basis, the Value Unit. We do not need to content ourselves with fiddling with arbitrary indexes of our choosing. We let them decide those things. After all, it is their money, not ours. As for ours, we want it to stay nearly forever the same in purchasing power. The only way to do that is to defeat quantity (commodity) as a basis for determining purchasing power, measuring value in a monetary system. You simply do that by choosing a transaction on a particular date as your representative Figure 1 and allowing their indexes to determine its variance from inception expressed on a daily basis in any other of their currencies.

Parenthetically, we note that bitcoin (to pick but one among many alternatives that are cropping up) advertises itself as having a built in scarcity as a feature, therefore bitcoin is automatically a commodity, just like any other commodity as money and therefore is subject to speculation.

The quantity theory of money allows any commodity to function as money as long as its quantity is tied to some supposed mechanism to control supply. Look how many worthless things they have created that are supposedly worth something because they are scarce and yet they are made up things of no real value. I see no difference between birtcoin and carbon tax quota trading. It's just another arena for speculation, which produces nothing of any value.

So said Georg from Germany. The value of each and every bitcoin is determined on the prospects of holding it for later sale or for buying something else now or in the future. The two reasons have different reasoning behind them. Holding something for future sale usually means one buys cheap and sells dear. One may take advantage of volume deals if one has the cash. But the value of each bitcoin is determined by speculators that presume there is someone out there willing to buy their bitcoins at an exalted price.

The second reason for holding bitcoin is the market for goods and services priced in them, which we remind everyone is always a reason for holding any money of any kind; that one knows where one can spend it. The authors of bitcoin (and any similar commodity monetary systems) have accomplished precisely nothing. They have specifically failed to address the issue of one commodity used as money to price all other commodities in their market.

Our proposal solves this problem. It says in effect, you want a Value Unit? You can have all you want, but you will pay the equivalent of its purchasing power at inception for each and every last one of them, no volume discounts, and that value will be reflected in the exchanges for gold and silver, since that also has the remarkable tendency to pull those means of exchange out of the market; to make them eventually as the stones under our feet. They would only be used to raise money in their currencies to pay taxes in their money to their governments. And of course we fully expect that before too long all the stupid speculation passing itself off as true investments; frauds, and yes certainly including bitcoin, etc. shall fail. When they do, we will have the solution. We have it anyway and it can be run in parallel with the existing system right now.

The proposed supporting network we called Independent Exchanges (IEs). These would be for profit businesses set up within the Value Exchange Networks they would support. Each would be given a suitable geographical area to serve. Within the US, we prefer the county level and suggest that a working VEN would in most cases need to service three counties within the same state, three or more IE's, serving a potential market of at least a few tens of thousands of people. 

[5 March, 2014: There really is only one VEN, though we could consider each limited trading area supported by an IE to possess its own VENness as further exhibited on the principal paper representations of Valuns, the V-Check and personal checks.  The VEN is literally the market created by Value Units, so it could theoretically exist anywhere.  There are even some who believe that since Valuns would not be monetary instruments covered under laws to govern national money monopolies, that their use in trade across borders presents no difficulties.  Our response is caution.  Don't count on anything right now without more information.]  

Institutionally similar to banks, except none would ever lend any money to anyone, we prefer to call them exchanges. These are the local record keepers the community of Valun users chooses to serve them. These businesses will be run by and for each local community with each A member having a vote in elections of the usual kinds of officers required to run such a business. Their organization type shall therefore be a private cooperative served by elected officers. This means, in case anyone thinks otherwise, that none of these will be organized as “public” corporations whose “shares” may be purchased by speculators. We want it thoroughly understood that unless one is willing to buy and run an actual business, we are not interested in the participation of “absentee owners” or “investors.”

IEs would be designed to benefit their owners paid in Value Units, not national currencies, though we will be discussing taxes as a necessary issue. Remember, we want to run parallel to the existing system for right now, eventually renouncing the present monetary system for our own. We further suggest that all locations of IE offices (and their associated Valun counters) be on private property, not subject to any public laws applying to public -customers walk in off the street- businesses, as these are in every respect to be private businesses that choose their own members. They would be open a limited number of hours each week.

Membership in any IE is determined by domicile; that you have a lawful right to live within the geographical service area of each IE. If you are joining as an individual human being, you're an A member. You will also need the recommendation of TWO existing A members. Each IE is formed by the initial three A members that decide to abide by the rules and form one. The rules are to be universally applied and agreed to. See IVES below.

If you are joining as a business, it would be as a B member. It is presumed that you are operating under your own name or under a DBA or equivalent in your area, that you are not owned in any way by any absentee partners, public corporations or governments. Private partnerships without state sponsorship or recognition would be admissible. Families running businesses, especially those engaged in farming, are practically assured membership. Public corporations, with their many disabilities, as well as governments are forbidden membership at this time.

This is another change from Riegel's period. He was idealistic concerning establishment help for a competing idea and was seemingly oblivious to the dangers of limited liability public corporations run amok. We are in hindsight of history not willing to be so naive.

A supporting organization, not a dominating one, shall be the International Value Exchange Society (IVES). IVES will be a B member of every exchange and though IVES isn't yet decided to be a for profit going concern, it probably will be. Each IE will supply someone whose duties include participation in IVES activities. We prefer to think of IVES as the glue holding individual IE's together, rather than as a superior authority demanding compliance to its rules. It's goals are as far as possible to ensure a uniform valuation of the Value Unit across all possible VENs. IVES personnel would be responsible for setting the exchange value of Valuns per business day, based on the value of gold and silver bullion at a bid price sufficient to secure physical possession. We will neither need nor use any other basis.

Another set of tasks assigned to IVES would be the registration of all circulating V-Checks, as well as the design and sale of Valun private checks.  These matters were described more fully here.

Among the possible responsibilities of IVES would be the usual information services – applications development IS – AD functions. The functions determined and developed under IVES rules would be used by all IEs and their Valun counters everywhere, most likely on stand alone laptop computers with flash drives and protocols to ensure that no private information ever reaches the internet.

Each member's account would consist of records applying to a ledger of journalled entries. An A member ledger will look somewhat different from a B member ledger. There might be a bunch of transactions consisting of journalled entries to both the members' accounts and the accounts of each IE that would be considered a transaction. Each transaction would represent movement within the system; someone bought or sold something or is making a payment in fulfilment of either a labour contract or a credit contract. These accounts were described in some detail here.

For each of these standard transactions, a fee of one tenth of one percent of the Valun amount is charged to the initiator of the transaction. These fees become the only income stream for the IEs. (The subject of fees should be reviewed after a fair trial in a number of IEs to determine its adequacy).

Finance is a key function within any monetary system and just how it is allowed to operate within a VEN is among the most important dimensions of the proposal. All finance businesses, those engaged in extending credit or wiling to assume the risks of extending the terms of settlement of a sale, are separate business entities operating completely separate from the IEs. They must all be accredited B members of their IEs. They may operate as B members in any number of IEs. They must all be private companies, they must use Valuns that have already been created as they will not be able to create Valuns from nothing and they must adhere to acceptable credit contract restrictions that shall forbid payment of any uncreated money and all compounded interest. We simply throw out all the usual assumptions concerning the rights of idle money as baloney. You might offer your money for rental under IVES rules and you can get a decent return: you shall not get money on earnings compounded from such rents, as that is STEALING! If you don't happen to agree, that's too damn bad!

We expect finance to have the greatest application to items ranging from capital equipment, power tools, etc. to autos, trucks, land, housing, businesses, factories and farms. Orders of various kinds of material could likewise also be financed by a specialized business that knows these markets, etc. A suggestion has been made that each IE begin as well to set up an alternative land registry, though once again, this function might better be served by a business making this their speciality and charging a requisite fee for their services, in Valuns of course.

David Burton

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