Monday, February 8, 2016

#68 On the Invention of Money & Other Matters

This is a multifaceted paper, repeating some essential points and connecting with many issues covered in this blog's preceding papers; commenting on a number of subjects related to this blog's money proposal:

As we all should long have figured out by now, the human invention of money marked a turning point in human history. It distinguished the human as a truly civilized man as compared with a savage. Money has the principal use as the means to split barter between people and associations of people otherwise bound to trade by whole barter; service or substance, consumable or durable rendered in whole in trade. What most of us observe about money is its circulating tokens, or we used to. Nowadays they have us using swipe cards more often, so we lose greater track of our money and how it is being spent, while they have unlimited view of our transaction data so they can gamble on commodities and securities while holding our money, since we no longer hold it as cash.

Money could exist without circulating tokens if there was a third party keeping track of all trades / transactions; the electronic networking enabling swipe cards, a bookkeeper or an accountant. This money function was carried on in full in ancient Babylon, by the caste of scribes, although the Babylonians were circulating clay coins used to make smaller purchases. The scribes made sure that all transactions were cleared, that matters involving the buying and selling of things including human slaves and various forms of incidental human labour were accounted for with virtually no evidence of any money as tokens ever being circulated.

What one does when one agrees to work for money is barter one's labour for shelter, food and clothing, etc. by use of money. The money used to pay bills for these things or buy them outright backs the money spent. Money has no other backing and requires none. This is one of E. C. Riegel's primary observations, not on what people say that money represents, etc. but merely by what money actually accomplishes in trade.

That money has no other value than what it buys is often not even grasped for the obvious truth that it is. It's obvious, you don't need to look for it too hard: I earned a dollar bill, I used that dollar bill to buy a small pen with which to write a note to myself about something. Neither I nor the man who sold me the pen cared whether the dollar I used was “backed” by anything. The man who sold me the pen knew where he could spend that dollar. I presented my dollar and received in exchange the pen. Our barter transaction was completed; I worked a dollar's worth of whatever for a dollar's worth of pen. Once understood, any argument that insists that money must have any further “intrinsic” value or “backing” are exposed as the misguided or erroneous opinions of deceivers, liars, idiots or scoundrels; take your pick. All those erroneous and non sequitur (irrelevant) ideas are just extra junk you don't need in order to understand what an honest money system is and how it would operate as a machine used by society for its ends, not those of a limited number of people to whom the monopoly issuance of money has been incorrectly and erroneously given.

We have just told you most if not all there is to know about money. We said that clay coins had been used in ancient times as money. The Spartans used leather rectangles as money. The Athenians brought silver and later gold coinage into common use as money in the Greek world. Precious metals coinage as money was imposed on people by FORCE, not freely accepted by the common people, because most of the common people didn't have any gold or silver to begin with. So contrary to what Rothbard and the other “Austrians” may say, most of the people at any time would NOT have seen or chosen as money, something in such short supply, which they didn't have much of anyway, as any better than that money they were already accustomed to using; wooden coins or sticks. In fact accepting a precious metals coinage as the only money usually meant that some of the population would of necessity be enslaved to other members of the population. 

A precious metals based money actually promotes class divisions exactly in this manner. We've now told you almost all worth knowing in sociology as well. It's all in the history of money. The interested could further submit to an exhaustive study comprising Compte (this is where you simply decide to ignore anything that isn't material, including human beings), Durkheim (start here), certainly Marx, Spencer (I particularly like him), Taine, then Sumner, Ward, Du Bois, Pareto, always de Tocqueville (valuable eye-witness accounts), some Sombart, Veblen (almost timeless), Tönnies, Simmel and of course Mannheim.

Anyway, those claiming that precious metals “backed” money represents freedom are outright liars and their minds usually devoid of any historical grounding. In the Middle Ages liars were horsewhipped, charged a fine in silver coin of the realm and then let go. I admonish all of the “gold bugs” out there to take any old gold or silver coin and examine whose heads appear on them; various kings and potentates. The people never freely chose them. Wealthy merchants and bankers did, and then imposed their use on people by FORCE using the state as their chief creditor to do their bidding and it's been substantially the same game ever since. Perhaps the use of precious metals had more to do with the suppliers long experience of being cheated by the middlemen merchants and therefore demanding payment in precious metals, the value of which they themselves determined. This displays a matter of mistrust in the world trading process that exists to this very day. Since the merchants had to pay in precious metals they began demanding it of everybody else in society. The people did not and would not have chosen it freely. Thus:

The “precious metals as money” thing (thing is what it is too) is the other horn of the bankers' dilemma, the other being paper issued at interest or as they like to put it, “bank credit.”

Now, this blog's proposal takes these two things; the precious metals as money and the fiat paper as money and fuses them together, extinguishing their power or appeal. Since none of it was issued by individual human beings, including the gold, silver or other metal coinage, it is all deemed by this blog as essentially illegitimate money by definition, since this blog considers and advocates the understanding that the issuance of money is itself an inalienable personal right, one that no one can legitimately give up to a state, except by their free and open consent, which the state (and its creditors) believes it has been granted by you anyway and may regard your consent as concerns money as part of your acceptance of what you know or understand about the US Constitution under which jurisdiction you may live, if you are an American citizen.

But regardless, money issuance belongs right in there among the rights professed and understood by the First Amendment of the US Constitution. Stated with reference to E. C. Riegel, it might read something like this:

All impecunious (penniless, poor, impoverished, indigent, insolvent, hard up, poverty-stricken, needy, destitute) individual human beings are endowed by their Creator with certain innate wealth, such capable of providing them an income, which they may turn into a money credit, limited to subsistence, determined by judgement of the communities in which they have legal domicile.”

We did say that money distinguished the civilized man from the savage, therefore we accept the interdependence of all civilized human beings and the value of civilization and of being civilized, recognizing as we do, that it amounts to a common recognition of mutual SANITY and the REASONABLE EXPECTATION of continuing peace that can and would normally prevail among us.

This blog's proposal for a complementary monetary system to operate alongside the present illegitimate one sees the organization of local communities to be served by an independent exchange which might have many branches or “counters” situated in known locations and operating during set hours as PRIVATE places of business not open to the general public, but to members only. Some basis for reporting transaction information to customers may end up being created using phone apps the way things are going. What is a gold bug going to say about Valuns being transmitted between people using their phones when this is likely to be the way of dollars before long as cash is phased out? We actually hope that cash is not phased out and would like to see a revival in interest in paper cash, designed as an advertising vehicle as well as monetary tokens. Imagine our proposed colourful and very upscale looking V-Checks on the kind of paper that was used for travellers checks in the past that would be intended to last up to six months of circulation before having to be deposited, which could be either redeemed or deposited whether out of date or not, etc.

When one works for money, one is converting one's labour for things and services one buys. That conversion from labour to things and services amounts to barter achieved by the vehicle of money. We'll repeat this so everyone gets it. And all that one buys with one's money day in and day out backs that money, and nothing else. We'll likewise repeat this one often. But people want to know why they should accept payment in Valuns alongside their usual payments in dollars, euros, pounds, yen, etc.

Well, another of E. C. Riegel's observations from his era after the Great Depression and WWII was that most labour was not adequately paid. That was all the way back then, that most labour was not well paid and that were there money issued where it was needed by those who could issue it that there would be more money for more people to be paid for what extra work might be wanting done. He also noted that since all money was lent into existence at interest, and that interest was never created along with the rest of the money, that no matter how much money was created in this way, there would never be enough money to pay off all debts. Of course this is the arithmetic proof that usury of any magnitude is ultimately stealing by the money lending class, since that which was never created must be contested for from everyone else in society; deliberate creations of money scarcity only serve to benefit an already affluent ruling class as they stand above “the masses” scrambling for ever short supplies of money, that fundamental of civilized inventions. Just because this is the way it is, doesn't mean that it is the only way such a thing as a monetary system could or should be devised and operated. One sometimes has to wait 25 years, having read all else in the field before the teacher, in this case E. C. Riegel, appears, and of course Riegel, as Arthur Kitson to some degree before him, had to demolish a lot of baseless rubbish concocted for no purpose but to prop up the uselessness of the banking and ruling classes; the true “useless eaters” etc.

We also observe that no matter whatever the tokens used as money, or even if there are any tokens used at all, as many large purchases are merely bookkeeping entries these days as they were in Babylonian times, no matter what money is used anywhere, all money represents debt to someone. ALL money represents debt. Also money is always a representation of debt. So if anyone promises you “debt free money,” never believe him because he clearly doesn't know that much about money. All money is debt, debt to someone. Therefore, it matters quite a lot just to who that debt belongs.

If I present my money as gold coins with some old English monarch's head on it, the present value of that gold, determined by people over whom I have no control whatsoever, participates in whatever I buy with it. If my debt instrument of choice, since I issue it with my labour or acquire it from my community by my poverty, is a piece of paper with advertising on one side, it is similar to a coupon that says it is exchangeable for a particular service or thing from perhaps a particular patron operating a business in a trading community.

The proposed money -Valuns in the form of V Checks- would be acceptable among anyone in a community that agrees to use them; but the whole trading association would be private. It would have to be based on mutual trust. Yet under the rules implied by the proposal, that private community could extend around the world. All this money would be backed only by what it buys, but it would be issued by the people within a particular community using a particular value measurement in common use by all; the international standard Value Unit or Valun, which would be analogous to any standard weight or measure. And since it is so tightly defined: 1 Au oz. = 1,000 Valuns = $2,160 on 2 November, 2011, it doesn't matter how many Valuns are out there, they will all be based on the same never changing transaction as a basis for all of them.

The invention of money allowed people to trade with each other without knowing each other. That could be so within a small community or just the same worldwide. We said in #39 that cash in any money allowed anonymity and that is why cash always got the best prices.

This anonymity property of money is under attack by those FORCES behind the system who want a record of every transaction possible as information so they can gamble on the probable futures of various commodities underlying the products represented by these transactions. This practise, commodity speculation, on the part of money lenders and financiers is as old as ancient Babylon, if not considerably older. It probably will never be wiped out entirely, but we would hope that the reforms in our proposal will foster an improved and transparent financial world, one designed never to bring down the transaction clearing functions of the proposed community exchanges known as independent exchanges or IE's. We'd expect to see far more competition and a greater redundancy of smaller units of finance too. Some might indeed grow to become great engines of economic growth, but they will never endanger the rest of the economy as previously because these businesses will -

1. Not have the right to issue money. They would adopt a 100% reserve basis. This would serve to limit their size and capacity for lending. All fractional reserve lending models are forbidden.
2. Not be able to use money issued to them through labour contracts as a cash reserve against outstanding debt.
3. Not be able to ask back in payment any money that was not created / issued elsewhere in the system – thus satisfying the intention to eliminate usury.
4. Not be able to promise any fixed yields / distributions to investors by percentage, but only portions of the company's earnings by a percentage of the number of common shares sold by a financial business (B member) as being the same as limited partners representing shares in the partnership (A members only) The community makes no claims whatsoever to benefit anyone outside its trading community by allowing them as parties to contracts within the community: this provision also prevents losses should those occur interfering with anyone outside the trading community.

Example: The ABC Finance Company is a B member in a local IE that specializes in selling credit contracts to A members to buy cars. The original partners in the company use common law to define themselves as general partners with certain duties and to sell shares of their business, not to exceed 50% of said business, to A member investors who would be limited partners of said business. There are applicable tax laws -where all the taxes are to be paid in dollars or the local currencies where similar tax laws apply- to such business structures, especially to any cost basis and any dividends or distributions from such businesses, and this blog's proposal has no intention whatever of defying or sidestepping or causing or suggesting that others defy or ignore such tax laws, or any other of these public laws, except that everything in these private contracts to buy portions of these businesses would carry certain additional restrictions and stipulations and would be enumerated in Valuns.

Some of the stipulations should seem self explanatory: the shares in this private business are private, therefore you cannot sell them in a stock market free for all, where your money invested is placed one day and yanked away the next. That sort of petulant behaviour on the part of nervous capital will have to understand a few things; their success must come through the success of others. The idea that “money goes where it's welcome and capital where it's treated best,” as attributed to Walter Wriston, is fine just as long as those who use it for various projects involved with increasing or improving on value have the TIME and chance to return many times the original value invested. Such would really be the case with small farming, as when left alone, the world would thereby be able to feed itself and all naturally and organically as well.

So when an everyday person, unemployed or not, having to pay for their lives forward recognizes that they are not being paid enough money to maintain a rising standard of living -due to inflation of all government issued fiat currencies, simply because governments issue them, not that they are fiat- then the idea of an alternative supplementary source of income / money begins to make the most sense.

Usually people want more of that government issued money, but the system may not want to give it to you. If your long term reportable income through a bank account is flat or down, your credit rating may be too low to qualify you for a loan, and then once you get the loan how do you pay it back? How do you find work in a 20%-35% unemployment economy? Some economies are even worse, all for want of money to pay people to do work.

And yet everything you see around you that gives the world any value was the direct result of human labour. So where is the money? Riegel said that people would have to recognize that they'd have to create their own money and agree and trust to be able to trade among themselves or they would forever be slaves. But what should that money be like?

The only money, evidence of debt, worth holding is a money you know you can spend for something, not just today or tomorrow, but next week, next year, forever. The “gold bugs” will instantly tell you that of course everybody will trade for silver and gold coins when times get tough because after all they're worth something, or “worth some thing” in trade. This is always an argument from some dystopia when everything has at last broken down, as it has a few times before, so it will once again, that gold and silver become the de-facto trading vehicles; when all else has lost trust, precious metals become the only money. There's anonymity with using them and they are relatively portable, though they still can't fly, and they are at least reasonably durable; all the things Rothbard and others have extolled in them. But they are commodities used as money and being commodities are subject to speculation.

We have to assume that even in a Valun based monetary system that speculation on just how many Valuns might be available would be a natural preoccupation for those intending on going into finance in a Valun based system. Due to the way Valuns are accounted in the transaction clearing (credit clearing) process, it may be relatively more difficult to ascertain the exact number of Valuns in circulation at any one moment and then as we have said in a few places, not all tokens are associated with every sale. But these things have been studied as applicable in all monetary systems and there is nothing to bar anyone from many forms of finance as long as the above rules are recognized. Finance is not of necessity the sport of creating something from nothing and demanding back more than was created. No, it is the sound and risk adverse wisdom of the financier required to know what a credit contract is and how to earn an honest return from money that was created elsewhere. The only payout most financial businesses would have to make, would be to the people keeping their eyes on the transactions, so the overhead for finance could be extremely low, and of course there would be more competition driving down rates. Nevertheless there would probably be some effective level similar to the differences between outright purchase and instalment payment plans in the marketplace today, always reckoned in Valuns of course.

BTW: the markets being down, as predicted, we'd see a spike in precious metals, predicted, wont last as the general trend is deflationary driven by lower oil prices in an attempt, stupid and it wont work, to break Russia by the PTB. The Valun as a result has fallen from nearly $3 to $2.86 which will be temporary because precious metals will continue their slide to a predicted $1,050 for gold.

David Burton

Current Hypothetical Value of a Hypothetical Value Unit