CHAPTER
XIV.
CURRENCY
— CIRCULATING MEDIUM.
Currency and circulating medium are terms both synonymous with money. The word money is said to have been derived from a surname of the goddess Juno, in whose temple the metals were coined. Currency means, literally, a running, flowing or passing; a continued or uninterrupted course, and was evidently applied to the medium of exchange in consequence of its function of circulating, flowing, or being passed along.
Thus Sir Dudley North says: "This ebbing and flowing of money supplies and accommodates itself without any aid of politicians.” In law, the word has, however, another meaning. It is well known that stolen property may be recovered from the hands of an innocent holder. A man may lose a thing without losing the right to that thing, and he may recover it from any person, no matter how honestly that person may have come by it. This right to recover a thing is termed in Roman law, the jus vindicandi. This law holds good for all forms of property excepting money. The person who innocently receives stolen or lost money, in exchange for some consideration, goods or services, has the right to retain it. The property in money passes by delivery. The loser may recover, if he finds it in the hands of the thief or finder, but not from an innocent purchaser.
This attribute of money is termed "current," or "currency," or "negotiability." Thus the term has two distinct meanings, as used in law and economics. "Circulating medium" is a term which likewise defines another function of money, viz., that of causing commodities to circulate. It is the means or medium by which commodities circulate.
Now, when sales are made, the motion of commodities is directly opposite to that of money. The motion of commodities is always towards the purchasers, whilst money is continually moving towards the sellers. These opposite motions comprise the vast and complex business of the entire commercial world. The amount of business transacted in any community is proportional to the amount of commodities in circulation, and this is proportional to the momentum of the circulating medium. Now momentum is the product of mass into velocity; hence the quantity of commodities circulated in a given time is proportional to the amount of money in circulation, multiplied into the velocity with which it moves. It is, therefore, quite apparent that a small amount of money, moving rapidly, will do as much work as a large amount moving slowly. This explains why England and the United States, with less money per capita than France, are enabled to do a very much larger business.
Now since the function of money is to facilitate the movement of commodities, and since this movement is proportional to the amount and velocity of money, it follows that that money is the best and most useful that can move the most rapidly and which is the least liable to derangement, i. e., the movement of which is attended with the least friction. It is evident, therefore, that commodity money cannot perform the work of circulation as efficiently as money that is free from this association. Influenced as it is at all times by the commodity, its movements are constantly hampered and restricted. What happens with any commodity based money is that the person having this money may determine that its purchasing power is increasing (deflation), therefore he may hold it longer, or if its purchasing power is decreasing (inflation) that he would spend it sooner. We want neither of these considerations to hamper the actual exchanges between VEN members.
Hoarding is directly antagonistic to trade and commerce, since it removes from circulation some of the circulating medium, causing a loss of momentum in the moving mass of currency. Now the propensity for hoarding arises from a desire to retain possession of the commodity with which money is usually associated. The desire for hoarding gold and silver seems to be universal among the more ignorant classes, especially in the East. It is said that from 1602 to 1734, the Hindus buried 150 millions of pounds sterling of silver, which originally came from America to Europe. (“Das Kapital,” Marx)
From 1856 to 1866, England exported to India and China 120 million pounds in silver, which had been received in exchange for Australian gold. Most of the silver exported to China makes its way to India. The propensity of the French peasantry for hoarding is proverbial. All sums hoarded are withdrawn from circulation, the effect of which must necessarily be to reduce the circulation of commodities, so that we have here another illustration of the pernicious effect of associating money with a commodity. We advocate having some gold and silver for the time, if and when it should come, that the present system crashes and then the basis for trade would fall back to the level of the 4th century (when life was nasty, brutish and short); the level of pure barter. But all that the hoarding of gold and silver accomplishes is to remove purchasing power from the present economic system; it puts that purchasing power “on ice,” removes it from circulation. Hoarding gold and silver is in effect saying NO to the present order of things, which would be controlled by the international banking elite. But meanwhile, that same elite controls the precious metals business, so one is never free from them. They manipulate the exchanges for these metals, so therefore it makes no difference who says gold or silver are under valued. Their opinion is of no avail! Since precious metals cannot return an income by any means except renting it to someone else for financial leverage practices or something equally shady, neither gold, silver, platinum or whatever hunks of precious metals are wealth. All they are is commodities of another kind, other than milk, eggs, cheese, wheat, corn, barley, oats, flax, hogs, etc.
Weighed down from the start with this useless appendage, the velocity of money is constantly retarded, and as a medium of exchange it is rendered ineffectual, owing to a desire upon the part of many to retain possession of the commodity. "With the very earliest development of the circulation of commodities," says Karl Marx, "there is developed the necessity and the passionate desire to hold fast the product of the first metamorphosis. This product is the transformed shape of the commodity, or its gold chrysalis. Commodities are thus sold, not for the purpose of buying others, but in order to replace their commodity form by their money form. From being the mere means of effecting the circulation of commodities, this change of form becomes the end and aim. The changed form of the commodity is thus prevented from functioning as its unconditionally alienable form, or as its merely transient money form. The money becomes petrified into a hoard and the seller becomes a hoarder of money. In order that gold may be held as money and made to form a hoard, it must be prevented from circulating, or from transferring itself into a means of enjoyment. The hoarder, therefore, makes a sacrifice of the lusts of the flesh to his gold fetish. He acts in earnest up to the gospel of abstention. On the other hand, he can withdraw from circulation no more than what he has thrown into it, in the shape of commodities. The more he produces, the more he is able to sell. Hard work, saving and avarice are, therefore, his three cardinal virtues, and to sell much and buy little, the sum of his political economy." (Ibid, Marx) We trust that these natural tendencies among the miserly would prevail, whether the money were tokens of precious metals or the bits of numbers in a computerized account, and therefore that continual screeching we hear from those who want more interest paid them for holding their money, are all of the same character. Idle money should NOT be rewarded, it should retain its value until it is required to be spent for something deemed useful by the buyer. Today's seller who gets and retains the money is tomorrow's buyer. The goods or services that he buys when he does so, automatically “back” whatever money he has saved, whether that be in the form of other commodities, like gold or silver, or the numbers in a computer.
But although every sum of money taken out of circulation must be replaced by commodities, the resultant effect is changed. Commodities do not continue long to circulate; they are bought for use, for consumption, and hence are continually dropping out of circulation.
Money, on the contrary, is created for maintaining circulation; it is never consumed, but keeps in motion unless hoarded. Again, by replacing money with commodities, the work to be done by money still in circulation is increased, whilst the force remaining with which to do this work is diminished. By withdrawing money from circulation and replacing it with commodities, the load is increased and the power diminished. The system of hoarding is like tapping the main steam supply pipe of an engine, or diverting from a water wheel a portion of the stream, at the same time increasing the load. The function of money is to travel, to keep commodities moving, and whatever hinders its motion, interferes with its functions and should be avoided. If in issuing tickets for a theatrical performance, a manager were to produce elaborate and expensive works of art, gold or silver pieces inlaid with jewels, he need not be surprised to find his theatre empty and his performance unattended. The desire to retain the tickets might possibly be greater than the desire to witness the performance, and if the latter is attended only at the cost of parting with a beautiful and expensive work of art, it is quite possible that the majority of the public would hold to the tickets and forego the pleasure of the performance; hence the absurdity of making money costly. For this reason, and precisely so, Rothbard and others, who have long screeched for a return to a gold standard as a means of halting price inflation, would actually bring about a chronic deflationary depression, were their ideas to be followed.
Money should be, like a pedestrian, free from all unnecessary burdens. It should resemble the hare rather than the tortoise. We have seen that the term currency is used synonymously with money, and whatever may properly be termed money is termed currency. In the year 1840 a very interesting discussion took place in England upon the question of "What the term currency includes.” This discussion took place before the Parliamentary committee on banking, with the result that some extraordinary and very unscientific theories regarding currency became subjects of legislation, and were incorporated in the English bank charter act of 1844. An excellent account of these proceedings is contained in the celebrated work of Macleod, entitled the "Theory of Credit," with an able criticism of the prevailing theories. Among the several leading witnesses who appeared were Lord Overstone, Mr. George Warde Norman and Col. Torrens. Mr. Norman, a director of the Bank of England. Here follows a very lengthy testimony of Mr. George Warde Norman, a director of the Bank of England, as recorded by Macleod: After stating that bank deposits and bills of exchange were not included in his definition of money or currency, was asked,
“Will you explain the difference between the functions which money will perform, and those which bills of exchange or deposits will perform?" He replied,
"To answer that question fully, one must, I am afraid, take a rather wide view; but I look upon it that the three most essential qualities money should possess are, that it should be in universal demand by everybody, in all times and all places; that it should possess fixed value; and that it should be a perfect numerator. There are other qualities, but I think these are the most essential. Now when I look at all banking expedients, I find that they do not possess these qualities fully. They possess them in a very low degree; and, therefore, as we see took place in 1835, with a very large increase of the deposits of the bank, circulation diminished; and there was every appearance of the effects of contraction. There was an increased influx of treasure; and I conceive from that, there were lower prices. By a numerator, I mean that which measures the value of other commodities with the greatest possible facility. If we look at all these banking expedients, we see that they possess the three qualities which I have mentioned, in a very much lower degree."
"Will you state in what respect?”
"I can only take them one by one; a bill of exchange is an instrument commonly payable at some future time, at a certain place; and to some particular individual A private check is a bill of exchange, only good for a limited period of time, usually six months, and payable to a specified individual or company only; it is of no use to any other individual, except it is endorsed to him. A man cannot go into a shop with a bill of exchange and buy what he wants; he cannot pay his labourers with a bill of exchange. The same with a banker's deposit A banker's deposit would be a deposit slip/personal check made out to the bank, with explicit instructions for the money to be added to (credited) to a specific account, he can do nothing of that sort with that; he can do with less money than he would otherwise employ, if he had bills of exchange or bankers' deposits; but he cannot with bills of exchange or bankers' deposits, do whatever he could with sovereigns or shillings. By a banker's deposit, I mean a credit in a banker's books; nothing more nor less than that."
Mr. Samuel Jones Lloyd, afterwards Lord Overstone, was asked, "What is it you include in the term circulation?"
"I include in the term circulation, metallic coin and paper notes, promising to pay the metallic coin to bearer on demand." These were the equivalent of “gold or silver certificates” and “gold bugs” maintain that having an artificially scarce money supply, determined by reserves of precious metals, will halt price inflation. It will also halt commerce and industry and tend to universally depress prices, including money paid for common labour. Besides, these commodities are NOT and NEVER WILL BE controlled by the people whom money must serve, but ALWAYS HAS and ALWAYS WILL BE controlled by speculators in foreign centres without any care for anything or anyone in some far flung locality. The “gold bug” vision is an idealism, a cult, a superstition. Yes, it is a powerful one, but it is one just the same. Our proposal takes it by the horns, to defeat it once and for all as no other solution has, can or would.
"In your definition, then, of the word circulation, you do not include deposits?"
"No, I do not."
"Do you include bills of exchange?"
"No, I do not."
"Why do you include deposits in your definition of circulation?"
"To answer that question, I believe I must be allowed to revert to first principles. The precious metals are distributed to the different countries of ^he world by the operation of particular laws, which have been investigated, and are now well recognized. These laws allot to each country a certain portion of the precious metals, while others remained unchanged, remains itself unchanged. The precious metals converted into coin constitute the money of each country. That coin circulates sometimes in kind, but in highly advanced countries it is represented, to a certain extent, by paper notes, promising to pay bearer on demand; these notes, being of such nature in principle, that the increase of them supplants coin to an equal extent. Where these notes are in use, metallic coin together with these notes, constitute the money or the currency of that country. Now, this money is marked with certain distinguishable characteristics; first of all, that its amount is determined by the laws which apportion the precious metals to the different countries of the world; secondly, that it is in every country the common measure of value of all other commodities; the standard by reference to which the value of every other commodity is ascertained, and every contract fulfilled; and thirdly, it becomes the common medium for the adjustment of all transactions, equally, at all times, between all persons, and in all places. It has, further, the quality of discharging these functions in endless succession. Now I conceive that neither deposits nor bills of exchange in any way, whatever, possess these qualities. In the first place, the amount of them is not determined by the laws which determine the amount of the precious metals in each country; in the second place, they will in no respect serve as a common measure of value, or a standard, by reference to which we can measure the relative value of all other commodities; and in the next place, they do not possess that power of being universal exchangeable, which belongs to the money of a country." You should have noticed right away that there is something seriously wrong with this arrangement. This will be a matter for all genuine and serious students of law; lawyers, to discern. Whose right or business is it to make a “law” in defiance of natural law that precludes commodities from moving freely from country to country? How can any such “law” be enforced? Was it ever enforced in history? We know for instance of a “law” during Henry VIII's time that valued silver coin in England below that on the continent. The result was that silver fled the country to such a great extant that coins made of hard woods were actually circulated as money. They were unable to stem this flight despite cruel and odious measures. Who decides what these “laws” regarding precious metals shall be? The people who monopolize the precious metals business of course, right back to their mines, most of which in ancient times were run by slave labour. Are you beginning to understand the noose around the neck of humanity posed by precious metals and their advocates? What they say represents freedom actually represents a re-enslavement. They are con men and liars, all! “Austrians?” They aren't even real Austrians. Again, only our proposal takes their game into account, so that it can no longer compete with our honest money!
"Why do you not include bills of exchange in circulation?"
"I exclude bills of exchange for precisely the same reason that I have stated in my former answer for excluding deposits. There is another passage in the same report which appears to me to show very clearly that the French Chamber have fully appreciated the distinction between bills of exchange and money. Every written obligation to pay a sum due may become a sign of the money; the sign has acquired some of the advantages of circulating money, because like bills of exchange, it may be transmitted by the easy and prompt method of endorsement. But what obstacles there are! It does not represent at every instant to its holder, the sum inscribed on it; it can only be paid at a distant time; to realize at once, it must be parted with. If one finds anyone sufficiently trustful to accept it, it can only be transferred by endorsement. It is an eventual obligation which one contracts one's self, and under the weight of which, until it is paid, one's credit suffers. One is not always disposed to reveal the nature of one's business by the signatures one puts in circulation. These inconveniences led people to find out a sign of money still more active and more convenient, which shares, like the bill of exchange, the qualities of metallic money, because it has no merit but to represent it, but which can procure it at any amount; which like the pieces of money, is transferred from hand to hand, without the necessity of being guaranteed, without leaving traces of its passage.”
Now, see what Mr. Norman regarded as a safeguard, a confidence game that was then and still is played on the general public: "The note, payable to bearer on demand, issued by powerful associations, formed under the authority, and acting under the continual observation of government, has appeared to present these advantages. Hence, banks of circulation."
"Under similar circumstances will the aggregate amount credited to depositors in bankers' books, bear some relation to the quantity of money in the country?"
“I apprehend that it is dependent in a very great degree. I consider the money of the country to be the foundation, and the bills of exchange to be superstructure raised upon it. I consider that bills of exchange are an important fprm of banking operations, and the circulation of the country is the money in which these operations are to be adjusted; any contraction of the circulation of the country, will, of course, act upon credit; bills of exchange being an important form of credit, will feel the effect of that contraction in a very powerful degree; they will, in fact, be contracted in a much greater degree than the paper circulation.”
Sir Robert Peel: "What are the elements that constitute money in the sense in which you use the expression 'quantity of money?' What is the exact meaning you attach to the words 'quantity of money, quantity of metallic currency? ' "
Mr. Norman: "When I use the words ' quantity of money,' I mean the quantity of metallic coin and of paper notes, promising to pay the coin on demand, which are in circulation in this country."
"Paper notes payable in coin?"
"Yes."
" By whosoever issued?”
"Yes."
"By country banks as well as other banks?"
"Yes."
Note that the same essentially dishonest practise known as “fractional reserve banking” was going on at this time, except they were using tokens made of precious metals and all their paper notes were promises to pay in these coins even though there were at least 9 times the number of these notes as there were coins, so that occasionally when someone fell short of coins, a panic ensued and business confidence in their money was lost as well as the savings of most honest working people and the investments of the upwardly mobile middle classes of society, the one and only class upon which civilization itself rests. This essentially dishonest and rotten scheme has been re-invented using fiat equivalents and it still operates under the threat of default, except for one change; the governments of the world, or their central banks, get to become the lender of last resort, get to be the ones who get to create money out of nothing; by fiat, so that instead of crashing from time to time, the money is continually watered down so price inflation becomes inevitable. This is what we're living under now. It has not changed since Norman's time. AGAIN, it is not FIAT money that is to blame AT ALL. It has always been and remains WHO GETS TO ISSUE IT that matters.
Lastly we may quote Col. Torrens, because he was not only one of the most influential of the sect -how about CULT?-, but it has been alleged that he was in reality the author of the scheme for dividing the bank into two departments, which Sir Robert Peel adopted in his bank act of 1844. He says: "The terms money and currency have hitherto been employed to denote those instruments of exchange which possess intrinsic or derivative value, and by which, from law or custom, debts are discharged and transactions finally closed.” We saw earlier that this is clearly not so: only the exchange of goods or services for like amounts of other goods or services counts as clearing any exchange transactions: everything remains essentially barter: money is only the mediator to split barter. Peel continues; “Bank notes, payable in specie on demand, have been included under these terms, as well as coin, because, by law and custom, the acceptance of the note of a solvent bank, no less than the acceptance of coin, liquidates debts and closes transactions -it really does not, but-; while bills of exchange, bank credits, cheques, and other instruments by which the use of money is economized, have not been included under the terms of money and currency, because the acceptance of such instruments does not liquidate debts and finally close transactions." Do you see how easily led into jumping to wrong conclusions are even the “best” and the “brightest” people? Again Peel says, in reply to some perfectly just observations of Mr. Fullarton: "It is an obvious departure from ordinary language to say that whether a purchase is affected by payment in bank notes, or by bill of exchange, the result is the same. Money and credit, as established by the universal usage of the market, a purchase affected by a payment in bank notes, is ready money purchase (so is a purchase effected by a cheque); while a transaction negotiated by the payment of a bill of exchange is a purchase on credit. In the former case the transaction is concluded, and the vendor has no further claim upon the purchaser; in the latter case the transaction is not concluded, and the vendor continues to have a claim upon the purchaser until a further claim has been made in satisfaction of the bill of exchange. A bank note liquidates a debt, a bill of exchange records the existence of a debt and promises liquidation at a future day. Mr. Fullarton not only inverts language, but mistakes facts, when he says that the transactions of which the bank notes have been the instruments, must remain incomplete until the notes shall be returned upon the issuing bank, or discharged in cash.” By 'cash' here is meant ONLY precious metals coins. Peel continues;
“A bank note for £100 may pass from purchasers to vendors many times a day, finally closing on the instant each successive transaction. A bill of exchange may also pass from purchasers to vendors many times a day, but no one of the successive transactions, of which it is the medium, can be finally closed until the last recipient has received, in coin or bank notes, the amount it represents.” And that too happens to be a lie! Only goods or services EVER close a transaction! Peel continues;
"Now, it is the necessity of ultimate repayment, which constitutes the main point of distinction, which makes the boundary between forms of credit and money. It is a necessity which applies to bills of exchange and cheques, but which does not apply to bank notes; and, therefore, upon Mr. Fullarton's own showing, upon his own definitions and his conditions as to what constitutes money, bank notes come under the head of money; while bills of exchange and bankers' cheques and such other instruments as require ultimate payments, transfers and settlements, do not come under the phrase, money. . . . Upon Mr. Fullarton's own showing, money consists of those instruments only by which debts are discharged, balances adjusted, and transactions finally closed; and, therefore, Mr. Fullarton, unless he should choose to contradict himself, must admit that bank notes are, and bills of exchange, cash credits and cheques are not, money." We dare say that bank notes, specie, etc. are just as much a fiction as are personal checks when it comes to “clearing debts and transactions,” for as we say, only goods and services themselves can do that. Peel's (and we trust Norman's too) superstition regarding money as itself able to clear transactions and settle debts is laid bare for all reasonable observers to see quite clearly. Now here's what Kitson has to say;
I have taken these questions and answers verbatim from Macleod's "Theory of Credit," (Vol. II), in order to let the reader have the full effect of the entanglements into which the commodity money theory inevitably drags its advocates. The first thing to be said, regarding the definitions of money given by these banking gentlemen, is, that they are given from the standpoint of money merchants. Now, from the standpoint of the man who has something to sell, it is quite easy to understand why, in his opinion, that something should "be in universal demand by everybody, in all times and all places;" a phrase which Macleod points out as significantly resembling that celebrated phrase of the Roman Catholic Church: “Quod semper, quod ubique, quod ab omnibus.” ("what always, what everywhere, what by everyone.")
One can also see why, in view of the legislative influence of the committee, to advise legal restrictions in the issuance of money, these bankers should wish to make “universal demand” the sine qua non of money. Since the pressure or intensity of demand is inversely proportional to the quantity of the supply, restricting the supply necessarily enhances the purchasing power of the thing demanded, and by restricting the supply to the products of these gentlemen, theirs necessarily became the thing universally demanded; ergo, their product was money and theirs only. Here we come to a fundamental of today's reality: all bankers are monopolists! Just why these people should be accorded by society ANY special rights and privileges over others is a matter for astute lawyers to pursue.
On similar grounds, the Puritans established their claim to the earth. "Whereas the earth has been created by God for his saints, and whereas, we are his saints, therefore the earth is ours." It is also easy to perceive why these gentlemen should rule out deposits and bills of exchange. Deposits and bills of exchange are not of their creation; they are instruments controlled by commerce and tradesmen. Now the art of successful dealing is, according to experienced merchants, to depreciate as much as possible your neighbour's wares, and extol to the skies the merits of your own.
Hence, when Mr. Norman, as a director of the Bank of England, looked "at all banking expedients," he found "that they do not possess" the necessary "qualities" of money "fully." "They possess them in a very low degree," he says. He fails, however, to mention to what degree these "qualities" must be possessed by “banking expedients” to constitute them money. Again, the necessary qualifications of money, that "it should be in universal demand by everybody," is disastrous for the particular wares which Lord Overstone and Mr. Norman represented. For, as Macleod says, there is no substance or material for which there is a universal demand, "Hence there is no such thing as currency." Bank of England notes, sovereigns and shillings will not pass current at all times, in all places and amongst all people. Wherever British law is the law of the land, there, perhaps, this "quality" of money, this universal demand may be artificially maintained. The trick of establishing by law a system of exchange, and compelling people to trade by this system, and then maintaining that there exists a universal demand for it, is worthy of remembrance. We hereby see what to make of money; a monopoly that may not necessarily exist in nature, the means to split barter, but as we have already seen, NOT the means of completing or settling any transaction apart ultimately from barter.
On the same grounds the institution of slavery might have been upheld, owing to a universal demand, on the part of the slaves, to be supported; and any system of taxation may be justified by first establishing it by law, and then pleading a public demand for it. Let these words sink in fully for they are just as relevant as similar arguments for the monopoly over money or the monopoly over anything else.
If the owner of an artesian well could enlist the co-operation of a municipal government to forbid, under the penalty of fine and imprisonment, any person from boring for water, there would be within that municipality "a universal demand at all times, in all places and amongst all the people" for this particular water. But we should hardly term this demand a peculiar "quality" pertaining to the water, nor should we say that no other water could possess this "quality" to the same degree. It is unnecessary to discuss the absurdities involved in the sentence, "qualities money should possess," as applied to the demand for a thing, and to its function as a "perfect numerator." They are too glaring to need comment. Upon the senselessness of saying that money should "possess fixed value," I have in a former chapter dwelt. The chief thing to remember in the statements and definitions of these gentlemen, is, that they are based not upon any definite ideas or principles regarding the science of exchange, but merely from the standpoint of private interests. It was mainly from the testimony and opinions of these men that the present financial policy of England became established. The same applies just as well to all the modern organizations and institutions from the various worldwide banks, the Bank for International Settlements, the World Bank, the International Monetary Fund, the World Trade Organization, all the way down to institutions at the local level.
The distinction made by Col. Torrens between money or currency, and bank credits, cheques, etc., viz., that in the use of the former transactions are finally closed, whilst the acceptance of the latter does not liquidate debts or finally close transactions, is again another arbitrary distinction not recognized by the science of economics. It is quite possible for a State to enact a law repudiating its indebtedness, but such an act would not constitute, in the economic sense, a final closing of the transaction.
So finally, here it is, based on the foregoing: Neither can a legal tender act make of a demi-exchange a complete exchange, nor convert money into a commodity. We have already seen that a sale of goods for money is, in economics, half a transaction, and that the transaction is not completed until the money is exchanged for other products; hence, economically speaking, a transaction is not finally closed by the use of legal tender or currency, any more than by the use of a cheque or bill of exchange. The distinction drawn by Francis Walker between bank notes and cheques, in his work on Money, is that the former are a form of credit between the holder and issuer, but not between the buyer and seller, whilst cheques are a form of credit between the holder and issuer and between buyer and seller. A further distinction he makes is that cheques are accepted with reference to the character and competence of the persons offering them, whilst bank notes are not; and lastly, cheques pass usually by successive endorsements, whilst bank notes do not require endorsement. So bank notes, including everything issued by a central bank (since whether people believe it or not, they are nevertheless private institutions) is granted monopoly by fiat laws that stand against natural laws, are artificial and most importantly, do not settle any transactions, since all transactions are ultimately settled by barter, regardless of the time they take to settle.
These distinctions, however, when carefully examined, will not be found to constitute a vital or fundamental difference in the nature of the two instruments themselves. The first distinction is unimportant; it is merely a coincidence that the holder and issuer of the cheque are usually the buyer and seller. If I borrow money from a bank, and the bank loans me its own notes, the relation between me and the bank is the same as between the holder and issuer of a cheque. The bank is both issuer and buyer, I am holder, and seller. I have sold them (by borrowing) a right of action against me, and they have paid for this right in a form of credit. The bank has paid you in the form of credit as the money, whether it is in gold or silver coins, or paper, is not the ultimate object; goods and services are. A metals dealer is thus exactly in the same relation as any bank; one is buying credit or buying specie, there is no fundamental difference, and both are governed by speculation since their wares are all regarded as commodities.
In this instance, therefore, Professor Walker's distinction between cheques and bank notes vanishes. As to receiving bank notes "without reference to the character and presumed competence of the persons offering them," this is not true in the instance above given. If I borrow money from a bank on collateral security, and am paid in the bank's notes, I take them believing them to be valid, and with faith in the "character and competence of the persons offering them." Banks and bank notes rely on mere confidence, a con game; there is nothing more to it than a person using bank notes, or silver or gold coins (since there is no difference) having confidence that someone else will accept them to settle a barter transaction, since no transaction is ever settled except by barter. Money of whatever form, is just an intermediary, a means to split barter as Riegel observed.
If I had any doubts on this score, I should certainly not take them; I should deal with a bank in which I had confidence. As to the successive endorsements of cheques, it has likewise been customary in some places (England for example) for traders to insist on purchasers endorsing their names on the bank notes they pay with. Imagine that! What then is the fundamental difference between an endorsed bank note and a cheque? There isn't any! So again, Riegel was precisely correct when he suggested that all everyone needed was a cheque book.
The only distinction that can be claimed between cheques and bank notes, is a difference in the degree of acceptability -people generally have more confidence in one over the other; and in some cases it is questionable whether there would even be a difference in this respect. The cheques of a well known business man or corporation, will pass current in a community (as they often do) as easily as a bank note. In both instances the degree of acceptability is gauged by the credit of the issuer. It is somewhat astonishing to find Prof. Walker classifying inconvertible notes as money, while excluding cheques and bills of exchange, especially after defining "all that as money which performs the money functions." Later there came to be things called “bankers' acceptances” a promised future payment, or time draft, which was accepted and guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the amount of money, the date, and the person to which the payment is due. After acceptance, the draft becomes an unconditional liability of the bank. But the holder of the draft can sell (exchange) it for cash at a discount to a buyer who is willing to wait until the maturity date for the funds in the deposit. In this way a commodity could be bartered for bank notes early, before the crop was harvested. Problems occurred when crops failed, but banks had reasonable confidence in these and they are still used. But having the bank's notes in this way frequently led to disasters for the farmers. Banker's acceptances are said to make a transaction between two parties who do not know each other safer, because they allow the parties to substitute the bank's credit worthiness for that person or body who owes the payment. They are used widely in international trade for payments that are due for a future shipment of goods and services. Nevertheless, final settlement does not occur until goods or services sold are repaid by goods or services bought. Riegel's observation still stands; the only backing any money ever has is the goods or services the money buys when they buy them; all transactions are ultimately cleared by barter, not money.
In Chapter VIII of this work, I have shown what constitutes money. It is that which discharges the functions of a medium of exchange. It is a record of debt expressed in terms of a denominator of values. Acceptability is generally made the sine qua non of money. But the question arises, to what extent must an instrument be acceptable to become money? We have seen that no money is universally acceptable. In some countries silver has been the legal standard where gold was not. Gold is the standard in other countries where silver is not. But even in countries where a similar metallic standard is used, the coin of one country will not circulate in another. In fact, money never really goes from one country to another. It must be sold as bullion to realize on it, or exchanged as a commodity. This is still the case with paper or actually numerical currencies, since they are commodities just as much as specie ever was and derive their exchange rates from speculators. All this applies just as well to bitcoin, just another artificially created commodity. There is no fundamental difference between specie and a fiat currency issued by some central bank; they are all commodities, subject to speculation and the same is true of bitcoin since it too is a commodity. By comparison, a proposed Value Unit or Valun, is always a fixed amount of purchasing power based on the ultimate high transaction between dollars and gold (or one just as well chosen for convenience at a specific point in time) and thereafter the only side open to speculation are the dollar, gold and silver, while the Valun remains unchanged.
The same money is not universally acceptable. Therefore money must compete for acceptance! This would be the natural law of things without hampering by government FORCE. A Valun would compete based on the fact that it would never lose purchasing power, but would remain stable over very long periods of time by comparison with all other forms of money, including any precious metals, and we insolently proclaim that we have already proved this to be so as both gold and silver have lost purchasing power since the Valun's hypothetical inception and so indeed indeed has bitcoin! To what extent, then, must money be acceptable? If to a whole country, what sized country? If to a community, what number of people? If that is money which passes current among 30 million people, why is not that money which circulates among 1 million? And if among 1 million, why not among 1,000, 100, one dozen? No scientific reason has ever yet been given to show why that which performs the money functions between two individuals, is any the less money than that which performs the same office in a community numbering millions!
Macleod traces a similarity between cheques, bills of exchange and bank notes, even when regarded from the standpoint of English law. Currency, as a legal term, includes those things of which "the property passes by delivery and honest acquisition." "Bank notes, cheques and bank credits stand on exactly the same footing as to liquidating debts and closing transactions. Actually, HALF CLOSING THEM. No debtor can compel his creditor to accept an ordinary bank note, cheque or bank credit in payment of a debt; but if he chooses to do so voluntarily, they all equally liquidate debts and close transactions. Or may be capable of closing a transaction, when the money is in turn exchanged for goods or services. Tender of a check, is equally good tender as of an ordinary bank note. And when the bank has transferred the credit from the debtor's account to that of the creditor, it liquidates the debt and closes the transaction in all respects as if it had been a payment in money. As far as “money” is concerned, but no transaction is actually cleared until money is paid in turn for goods and services. We need quite badly to get this through our intentionally misled thick heads. If a creditor accepts payment by cheque and keeps the cheque an undue time without presenting it for payment -a limit of six months is common-, and the bank fails, having sufficient credit on the debtor's account to meet his cheque, the debt between the creditor and debtor is liquidated and the transaction closed." All these are quotes from Macleod:
"And if the credit has once been transferred from the account of the debtor to that of the creditor, the debt, as between parties, has been liquidated and the transaction closed, even though the bank should fail immediately afterwards." What Macleod is getting at here is that the transaction clearing function of any bank should be independent of the bank's financing function, and in fact whether the bank itself was solvent in regard to its outstanding loans or not, that simple bookkeeping transactions like these should remain perfectly solvent. We agree, which is why our proposal forever separates these functions. Such are the facts according to the English laws. By including bank notes as money, cheques and bills of exchange, therefore, must be classified as money. And these days, without any doubt whatsoever, swipe cards are just as well money.
Lawyers, please pay close attention: Now the true science of economics is, as we have seen, based upon justice, and justice is satisfied only with a completed transaction in the economic sense. We are confronted, therefore, with another paradox of laws enacted professedly to maintain justice, whilst enforcing injustice.
How completely the true functions of money are lost sight of, a glance at some of the statements already recorded, will show. "A bank note liquidates a debt, a bill of exchange records the existence of a debt, and promises liquidation at a future day," says Col. Torrens. Now the function of money is not to liquidate debts, but to record their existence; for, as Macleod very truly says, "where there is no debt, there can be no currency." We have seen how the necessity for money arises out of the inequalities of exchange, and how its use is to record and give expression to these inequalities. We have also seen that the liquidation of a debt, or satisfaction, is not obtained until the money, whether coin or notes, is transferred for commodities. By making coin or bank notes a final liquidator of debts, we make them, therefore, the end of exchange instead of the medium; hence, coin and bank notes would not, scientifically
speaking,
be true money, whilst bills of exchange would be.
To sum up, then: We may agree with Macleod, as to what comprises the different forms of currency, viz., token coins, paper currency, bank notes, checks, bills of exchange, exchequer bills, simple debts recorded on paper showing titles to payments -and for that matter discount coupons issued by a business for a limited period of time. "From these considerations it follows that the currency or circulating medium of any country, is the sum total of all the debts due to every individual in it; that is, all the money and credit in it." The record of debt, expressed in terms of the exchange relations of commodities, and accepted as the medium of exchange for commodities, is currency, no matter what may be the degree of its circulation.
It is currency only so long as it is current; as soon as it ceases to circulate, it ceases to be currency. The "degree of acceptability " has nothing to do with it. It is either currency or it is not; it is not a question of degree, it is entirely a question of fact; and since currency is synonymous with money, the same rules apply to money. "That is money; all that is money; and only that is money which performs the money functions." Cheques, bills of exchange, exchequer bills, bank notes and book debts are all expressed
in
terms of the value denominator. This applies to all coupons
too. They pass current to a greater or less
degree; they serve to circulate commodities; they form a medium of
exchange; in short, they perform the money functions, therefore they
are money in the strictest sense of the term.
Now, to “gold bugs:” It is well to remark that by including coin as currency money, I do not refer to the gold or silver coins "of full value," but merely token coins. It is obvious that the exchange of commodities for gold or silver coins of "full value," is simply barter, the exchange of one commodity for another; whereas, when money intervenes, direct barter is avoided. Macleod attempts to straddle the difficulty of associating money with the precious metals, by terming coins "Metallic credit!" Metallic brains! Metallic conscience! Metallic nonsense! We agree! "Currency" he says, "represents nothing but transferable debts." A coin of "full value " no more represents a debt than any other commodity; it carries full payment with it. The debt which it would otherwise represent is cancelled by the value of the gold or silver it contains. Coins, therefore, of full commodity value are not money; they are commodities. Now one may strive for barter as one likes, but the notion that a complete transaction using precious metals does not incur the participation of a third party is BOGUS, since unless one found the gold or silver and smelted it and coined it oneself, the bullion broker or coin dealer would in fact be that intermediary and whatever “money” would have had to have been paid for your gold or silver, would change from time to time, due to the speculations gold and silver, as commodities, are subjected to. Of course all “public” money are also commodities subject to the games of speculators as is bitcoin, which had a reported high of $1,216.73 and a low of $0. Meanwhile it goes up and down with speculation, same as stocks on a stock market. Want to invest in just another commodity? Don't be fooled! You don't know what the speculators may or may not know, the game is always rigged, you're about in the same position as a gamer in Vegas or Monaco.
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