Monday, February 4, 2013

#21 Value Unit Exchange Accounts

The Basics

The Value Exchange Network (VEN) is conceived of as a network of PRIVATE Independent Value Unit Exchanges (IEs), each representing a specific geographical area. The functions of each IE are to:

1) Manage accounts: Establish new accounts – clear or close out old accounts.
2) Clear exchange transactions between members within the VEN.
3) Use the Value Unit as the exclusive standard yardstick of value; money.
4) Clear or cancel credit contracts involving VEN members. 
5) Clear or cancel labour contracts involving VEN members. 
6) Determine indigence of its A members.

Each IE will be a B member of itself and may not be a B member of any other IE.

Membership and Domicile  

In accordance with E. C. Riegel's design, each member of an Independent Value Unit  Exchange will be either an A member; a single and unique human being, or a B member; a group of A members. An A member has the right to create money, a B member does not have this right.

An important idea that comes up at this time, is what is called Domicile; where one lives. We assert that under the rules of (the or an) VEN, the individual applying for A membership will have to prove legal right to Domicile in the country where the IE is located. In cases where someone has been living illegally for a long time, we would encourage them to return to their own country, if possible, and open an IE there. Even legal citizen nationals will have had to prove a 1 year residence in the area where the IE is located. Oh, and one other thing, one has to be sponsored by at least two other A members from the same IE!

The reason domicile is important is that were we to permit so called “illegal aliens” to join our private association, we would have to be supporting as a matter of policy either 1) their status as political refugees or 2) their economic status as cheap labour coming in to take advantage of supposed demand for cheap labour. You may recall in the #18 series, Ayn Rand, through John Galt, made it clear that to the vast majority of big business operators and their elite bosses, the physical labourer shouldn't be paid anything more than is required to feed him. Wouldn't it be better for those who are here illegally to go home and start a new economy there by opening up an IE there? We think so. It would really be better for everyone concerned too.

Though we thoroughly expect that eventually we will be swarmed with applications for A membership, nevertheless there will need to be some introductory instructional audio visual presentation that new members will need to watch, because the proposed world of the Value Unit is and is not quite like that of any traditional banking or finance network with which most people are familiar.

The A member Exchange Account

Each A member will open an exchange account, which will operate in most respects just like a traditional checking account. Most people are aware of debit cards for their checking accounts. We will have them too, for transactions in Value Units only, of course. In #20, we gave you a taste of things to come in the look of new money. IE checks will also be designed to comply with rules established by the VEN.

At the time the A member is accepted, certain aspects of the Value Unit world will be explained, but unique among them is the creation of your own money. In fact, the VEN will give each new A member 200 VU's (which is at this writing, 3 February 2013, equal to a $448 credit). [5-3-13: Laurence Gilbert was particularly upset by this proposal.  What may happen in our VEN will not pass the RMES Founder's idealistic views.] 

E. C. Riegel wrote of “red inkers;” those who would need to create their own money, because they didn't have any, nor any assets worth bartering into money. In each area where an IE is established, one of its functions will be to determine the indigence of its A members. Each IE will develop its own standards for determining indigence, subject to review of other neighbouring IE's. In the beginning, everyone is a “red inker” as we give them each 200 VU's to get started. But what each IE will determine is what the monthly level of indigence is for various classes of people among its members, including poor children.  [5-3-13: Mr. Gilbert also found this proposal offensive.]
Other groups of pensioners will be given particular attention as well, especially military veterans, police veterans, those whom the government or their former labour unions may have stiffed in one of the latest financial scams going unpunished. In some cases we will be dealing with people who have had nothing but broken promises for whom pensions were stolen, etc. We will also deal with the disabled and impoverished elderly. [5-3-13: Mr. Gilbert also found this proposal offensive.]

What (the or an) VEN proposes is to start with the level of expected monthly income from a pension in dollar (or other) terms and from that date onward add the equivalent in Value Units to these pensioner's accounts each month. We'll call this “red inking” an account. After that, whatever decisions governments or others might make regarding said pensions, raising payouts due to inflation or for other reasons, the IE will continue with the red inking payment schedule as originally set forth, until such time, if ever, that the pensioner A member begins to exceed in income from other sources, his monthly income from the IE. The process of moving from support to self sufficiency will be a gradual one too, not a quick and shocking cessation of the red inking, but a gradual fall off as the A member becomes a black operator. A black operator is someone with enough resources to run their account in the black. [5-3-13: Mr. Gilbert also found this proposal offensive.]

But, you might be saying, there are no Value Units and nowhere to spend them. That may be, but for there to be a thing, one has to create it as we are in the process of doing. It would not be lost on a few out there, what the ramifications of knowing that most of the military veterans not only in the US but elsewhere would have Value Unit accounts all stacking up VU's by the month for them to spend whenever a market develops which allows VU's to be used as money. That time will come. It's a matter of “build it and they will come.”  [5-3-13: It's alas, a bit more than that because "build it" does not signify the creation of some on line environment and doesn't first and foremost depend on computers or programming.  It depends on people and organizations, even if they are built to lie dormant for the time being.  More about this on the article concerning Markets. But in the meantime, Laurence Gilbert takes offense at any conception of money, potential or otherwise, being stacked up in anyone's accounts as if savings and investment meant nothing.  He likewise wishes to dismiss as unimportant the political ramifications of this proposal.]

The same goes for other indigent groups; having a VU account is like knowing that,  not if, or might, but when, the government as perpetual debtor to the usury run fractional reserve central banking cartel, finally collapses and the private banking system with it, that you have an ace in the hole and something worth protecting. It also tends to solidify who one's real friends are, and it isn't the elites. We in the VEN intend to be the Shangri-La that was to be there until the appointed time, to offer to mankind a way out of his age old miseries. [5-3-13: At this juncture, Laurence Gilbert has shown himself to be idealistically unaware of cold hard political realities that must be considered for any real solution to emerge.].  

Each VU exchange account will be represented as a series of data processing records in the form of a ledger, debits and credits journaled between accounts to represent settled transactions. Each transaction will involve at least 3 accounts and perhaps more; the A member's account (Smith), the IE account, another member account either A or B (Jones) with whom Smith does business. If Jones belongs to another IE, then Jones' IE account is also involved.

Let's say Smith buys 100 VU's worth of something from Jones. Let's say both Smith and Jones are members of the same IE. You have two journal entries:

Debit Smith 100 VU's – Credit Jones 100 VU's
Debit Smith .10 VU's – Credit IE .10 VU's

The buyer always pays the transaction fee.

Part of the information will be the account id's associated with each debit and credit journal entry. One of those account id's will be that of the local IE itself from whence the red inking free money shall come (Not really, but it will be accounted for this way.). All this free money is also accumulated in another part of each A member account, so that aggregates can be accumulated to determine how much of this free money is being created in each local IE and throughout the VEN. Where X VU's is the monthly payment “red inked” to A member's account, the journal entries look like this:

Debit IE X VU's – Credit A member X VU's
Debit A member (.1) X VU's – Credit IE (.1) X VU's

As will be pointed out, this is the only way that any new money will ever be created and flow into the VEN. All the rest of the Value Units will have to be bartered, traded or bought in from other financial systems. 
[28 February, 2014: The example above has been criticized by those who infer that this implies that the IE is the source of the Value Units when in fact only the A members are. There are reasons for doing things a certain way that result in some useful mechanisms. How much money did the A members of a particular IE create? Please do not jump to any conclusions. We aren't discussing anything concerning the openly contested “quantity theory of money.” But we do seek a means to replicate in our exchanges the same or similar mechanisms that Riegel devised to maintain the value of the Value Unit from location to location.  Riegel's solution involved something like insurance.  I think we can just use some kinds of ratios between money created by indigents or exchanged into the proposed monetary system.  All these exchanges of course will result in each IE having a store of precious metals, as no "public" money would be held for any reason longer than to make the transactions into bullion complete.

There are two points of entry for Value Units in this blog's proposed monetary system:

1) They are created by impecunious (poor) A members 
2) Monetary exchange.
[14 March, 2014: There is a third way.  Valuns are created the first day of every Labor Contract under the VEN.  They are destroyed when the employer pays the employee back the Valuns that were lent interest free to the employer.] 

If you are selling any object into the VEN for Value Units, there are no new Value Units created, the Value Units you get for your object were originally created through either of the two points of entry.

If a member brings dollars, euros, yen, etc. into his local exchange or any of their Valun counters, they receive in fair trade for their “public” money Value Units that spring into existence at the moment the trade occurs. Likewise those seeking to exchange Valuns for “public” currencies for the payment of taxes, destroy whatever Value Units are taken in trade.

The impecunious (poor) A member destroys any Value Units he issued upon taking back (being paid) any Value Units.]

B membership

The first B member of each and every IE (besides itself) will be the International Value Exchange Society (the IVES). This group will have the following responsibilities:

1) Confer or revoke operating status of all IEs.
2) Manage the creation, certification and distribution of all Value Unit exchange notes and coins to the IEs. (Through each IE cash account)
3) Settle disputes among VEN members. (Dispute resolution committees)

4) Consider ideas from VEN's for wider policy application. Please note that no policy may be initiated by the IVES; all suggested policies must have been enacted and tried successfully by at least three local IEs to gain consideration.

B membership is accorded to groups of A members who set themselves up in a free enterprise business. Their account will look and operate like a business checking account. As business grows, IEs will probably offer other accounting services to its B members.

A B member is usually going to be made up of A members. But perhaps there is a business out there that really wants to sell into the Value Unit community. It does this by establishing a separate entity to conduct business within the VU community in VU's and that entity becomes a B member of a local IE. This member will be a private business entity, not a corporation, that serves as a conduit for goods or services which might be provided by a corporation on the other end. There will be many VU retail operations that will function in this way; buying at wholesale in dollars and selling at retail in VU's. Eventually the freer VU environment, without the constraints of usury, will attract more and more businesses who will appreciate dealing in a monetary system that is not affected by government or banker action and where the rules of finance are easier and make far more sense.


E. C. Riegel envisaged that the costs of running an IE would be low, to be supplied by the costs of transactions, the cost of a transaction being no more than one tenth of one percent of the value transacted. He admitted that this very low transaction fee rate might need to be raised in line with real costs involved in transacting business.

All transactions are transfers representing buying and selling between member accounts. The first 200 VU's are free to everyone who becomes an A member. After that you pay a transaction fee suggested by E. C. Riegel to begin at one tenth of one percent of the value transacted for each transaction paid back to your IE. If the transaction is between your IE and another IE, each may charge the one tenth of one percent transaction fee. So for example in all those “red inking” of A members, for each month a payment is made into the A member's account from the IE, there is a transaction fee of one tenth of one percent of that payment that goes back to the IE as was seen above.

If you decide to cash out some of your VU's; remove them from your account into VU exchange notes and coins, you will still face a fee of one tenth of one percent of the transfer. CASH is another account set up by each IE with the support of the IVES. When you use your card or a check to get 100 VU's in cash, the transaction looks like this:

Debit your account 100 VU's – Credit CASH 100 VU's
Debit CASH 100 VU's – you get the cash
Debit your account .1 VU's – Credit IE .1 VU's

The CASH account receives your VU's and disburses cash to you. You pay the same transaction fee of one tenth of one percent of the value of the transaction back to the IE. Conversely, all cash VU's that are deposited back into an account consist of returning the cash to the CASH account, then removing the same amount from the CASH account and depositing it into your account. The cash account at each IE is maintained by the IE and the IVES.

Deposit 100 VU's cash – Credit CASH 100 VU's
Debit CASH 100 VU's – Credit your account 100 VU's
Debit your account .10 VU's – Credit IE .10 VU's

It will be of some people's concern that an IE can't function as a profitable business operating on transaction fees alone (some may even smirk that this is exactly why banks charge interest, etc.). If the IE has an account where the debit side pays out more than the fees the credit side takes in, then the IE accounts are always in the red; they are technically bankrupt. Well guess what ladies and gentlemen. This is one particular where it does not matter! Who is going to put the IE out of business? Only the IVES will have that authority, as they were also the authority that recognized the local IE in the first place. Eventually with the VU based economy cooking at around 3% to 5% unemployment, those transaction fees will increase and the “red inking” may all but cease. At that point maybe no new money will ever be added to the VEN  but all poverty will have ceased too.

How do VU's get into the system other than red inking?

You were certainly going to ask that question weren't you? In answer, you barter for them with something or a service, your labour. Some things are denominated in dollars or something else and have debt attached to them; mortgaged property in particular. That particular subject will have to wait a little longer. What if Smith had a perfectly good never been worn pair of socks she didn't need? Would Smith take a 1 VU bill for them? She might, since she knows that a friend of hers, Johnson, who runs the local farmers' market would take her 1 VU bill in trade for two heads of lettuce. Organic too. That's a lot of organic lettuce for a pair of old socks! Anyway the socks backed the VU in the first trade and the lettuce backed it again in the second trade and so on. Money needs no backing other than what it buys.

Which brings us back to the IE “red inking” paradox. The creator of the “red inked” money is not the IE, it is the A member who qualified for it. It doesn't have any “backing” until that A member goes out into the market and buys something with it, from another VEN member, which means that the money is not "created" until it is used to buy something.. With each transaction, a miniscule fee is paid back to the local IE. The “red inked” money is fiat money, as it is created without something being sold (like gold or silver or anything else), but it isn't really money until it is accepted in trade by a seller.  It is then "backed" by what it bought.  Also, instead of being created as fiat money “on high” and lent to the government at interest, which was never created in the first place, thus must be paid back from out of an imposed scarcity, the only way to try and outrun the debt monster in the present monetary system is a perpetual growth economy which is ... impossible!  Instead, the fiat is accomplished only by those who need it, the poor, and no one else.  We expect that markets for everything in Value Units will assume a more natural series of predictable price levels that will tend to make business cycles a thing of the past.

Instead of the present system, the Value Unit VEN sets out to establish a means whereby the inalienable right to create one's own money to trade for one's subsistence is a built in feature. Since this is the only way the Value Unit system allows any extra money to ever be created, the chances for a VU to inflate during an economic recovery are slim to none. A recovery? Oh yes, we will certainly need one, which will necessarily clean up the mess made by the “too big to fails” and the horribly mismanaged and irresponsible multinational corporations, not to mention the obvious misallocation of capital and resources that has also plagued us over the better part of the last 50 years, at least.  [Much longer actually as we regard all spending for things that are either war or aid in killing people or breaking their stuff as obvious misallocation of capital and resources.]

David Burton

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