Saturday, May 11, 2013

#30 Taking on Edwin Vieira

Dr. Edwin Vieira, Jr. is an attorney. He has written, without question, the authoritative legal history of the US dollar. It is bound in two large volumes entitled Pieces of Eight and is recommended to anyone wishing to approach the subject from the Constitutional perspective. [24 July, 2013: A shorter book describing the same subjects is The US Constitution and Money, Corruption and Decline by Michael Rozeff, a retired professor of finance, available here]  However all that being said, we must regard much of his work as simply irrelevant, because he has not imagined that the men who met in secret to devise the US Constitution were capable of making any mistakes. With regard to money, they made some fabulously serious mistakes, which some of us out here wish to call to the attention of the American people and to others around the world, who are serious about monetary reform, THE most important issue of our times.

In 2005, Vieira published an article called, Are Monetary and Banking Crises Inevitable in the Near FutureIn it, he made some statements which simply cannot stand unanswered. It is not our purpose to condemn Vieira, but to correct him. We value much that he has already contributed to the general debate on the future of the American Republic. All we want to do is to make some points exceedingly clear to him and to anyone else who may be in agreement with him, lest they be led astray down the wrong path.

Vieira begins his article by establishing the fact that socialism did not die with the Soviet Union and then assumes that the reason for socialism's demise there was as a direct result of the failure of central planning. This is misleading and incorrect. First of all, socialism has certainly not been discarded and after the fall of the Soviet Union has had even more opportunities to spread. The reason for this is tied directly to the government issuance of money and the requirements of the government's creditors and their corporate bureaucracies, who have set national policies now for hundreds of years. These people invented both socialism and its dialectic counterpart, capitalism, or the absentee ownership of assets and resources under limited liability. We did not free ourselves from either of these political scenarios by fighting a Revolutionary War and the framers of the US Constitution certainly did not free the people from them either. There is nothing, absolutely nothing, worth pursuing by looking backward and trying to get everyone to go back to some fanciful, non existent free market, which never existed and still does not exist.

Vieira touts the Austrian school's Ludwig von Mises, whose work as we have said before, represents the alternative to Keynesian economics offered and authored by the same people. We frankly aren't very interested in the Austrians, as they never really dare address fundamental issues concerning the common fractional reserve banking business model or the legitimacy of the government issue of money. Not funny how so many take these things for granted, neither of which shall stand the steady scrutiny of an awakened public.

Let's state a few facts as we understand them:

Money originates in the act of buying and the money offered is “backed” ONLY by what it buys. Anything else about money is pure hooey! Money is created by a purchase and destroyed when the same buyer receives equal payment for something he sells, including or especially his labour, thus cancelling out his purchase. We say that the buyer returns what he has taken from the market, by selling something of equal value back into it.

Government issue of money, ANY government issue of money, is illegitimate because it is all unbacked, not by gold, silver or something else the government might be said to own, but unbacked by anything the government would freely compete to sell in the open market. Whenever the government is forced, by whatever public desires or not, to compete with private operators, it inevitably drives them out of the market, because the government can, by money issue, apply FORCE in its buying and FORCE in its taxing (taking) powers. As all students of truth and law now should know, certainly if they have studied Bastiat, law is FORCE and any time such is brought to bear on ANY market, those markets are no longer free. This was in part explained in our piece on markets.

Schemes of so called FIAT currency have always failed BECAUSE they were government issued! This point has never seriously been made and it needs to be and often! People who want to regain control over their governments must begin by coming to their senses and regarding ANY and ALL government money issue as essentially illegitimate.

When E. C. Riegel said that commercial banks do not, strictly speaking, loan money, he was making a distinction between a commercial loan which must be paid back by an individual human or business borrower and a government borrower who would not need to resort to taxes only to pay back the loan, but simply to run deficits forever. Here's what happens; commercial loans are paid back and in the process the amount of money created is destroyed.  (Actually more money is destroyed than created through paying back uncreated interest, but we'll leave it as is for now.)  Where did the money go? It went into assets, property and payment for labour. Money did its job of splitting the terms of barter and after an equal amount was taken back in a sale and the commercial loan retired, that money is no longer in existence.

Not so with Federal government issue. Their debts are never payable because they're the government. Meanwhile the government, in our socialized monetary system, is the biggest buyer in the economy and thus we get all kinds of market aberrations that create monstrous things that we the people never would have wanted and would certainly not buy had we the choice, but we couldn't do anything about it because we were not the buyer!!!

Another wrinkle in this is that just because we have this agreement, that none of us ever agreed to, sorry, called the US Constitution, does not mean that we the people ARE the government or can determine even with our votes, what the government will or wont buy. Those decisions are made by the government's creditors. That too was the result of the founders' failure to correctly understand money.

Fractional reserve banking, which has assumed such an exalted status throughout the world, is a curse from ancient Babylon, imposed on the world by FORCE; not the result of any free market operating under any nominal degree of liberty to the individual or legitimate business. The precious metals, so beloved of the Austrians, were FORCED on world markets, they were not freely chosen or accepted rationally by any free market which is merely interested in settling the terms of barter. Fact is Mr. Vieira, if anything operating as money has any intrinsic value in itself, then it becomes part of the terms of barter and to the extent of its participation in the transaction, is not strictly speaking any longer operating as money.

Real honest money, contrary to all the LIES, therefore should have NO INTRINSIC VALUE. It is merely the means to settle exchange, which will be completed when the first buyer becomes a seller of more than he buys.

Now consider another thing the Austrians and others discuss endlessly ... and stupidly! They discuss “misallocation of scarce capital.” The whole notion that ANYONE can or should be able to determine the proper allocation of capital is ABSURD! This is another case where deliberate misinformation serves the cause of hiding facts from the people. Capital need not be scarce at all. What is involved normally is the credit worthiness of a borrower and his appetite for capital. Again, no governments qualify to issue money, so they must beg for what they can legitimately spend from the public's sufferance of their taxation AND NOTHING ELSE!

Do you honestly want to see an end to war and poverty worldwide and much else that is evil in this world? Solve the money issue question and everything else falls naturally into place. The founders were RIGHT to keep the government out of anything other than minting silver and gold coins, which in fact thereafter were not theirs, they were terribly WRONG to give the government ANY power to issue money based on its credit worthiness, which is how THEY did it, the “it” being the ability to create as much money as THEY wanted the government to spend on what THEY instructed the government to spend it on. The THEY being the chief creditors of the government, the central banks and corporations that would spring up around them just as Thomas Jefferson had warned.

Jefferson knew that the banking model was wrong, as most with any familiarity with the precious metals markets and credit would know from first hand experience. Yes, as it turns out, usury is a problem, but as we proved in another paper, any usury that has the effect of always creating scarcity in the money supply only really happens where the government issues money and nowhere else. The “interest” costs of borrowing end up in the goods or services bought, as that money is brought into the market and is in turn destroyed as the loan is repaid. The difference between our perspective on this point and that of a typical banker are as follows:

The commercial bank bases loaning capacity on a multiple of its “reserves,” established by its average of total demand accounts and other financial assets, which could include government debt; bonds, etc. We seek to separate the transaction clearing function and the finance function completely and forever, as they have always been in conflict of interest and based on a fundamental fraud, a fraud based on the SLAVERY of precious metals, not their propensity to induce freedom, as the Austrians claim. Since the Austrians maintain that precious metals somehow gained acceptance as money in a free and unregulated market, something that never has existed, they are proven flatly wrong, which is just as well as to have shown them the various crowned heads, etc. that have been impressed into such coins. Bluntly stated, the Austrians are proved liars!

“Savings,” so called, exist as leftover money from normal exchange and build up as liquid capital. Is there a limited amount of this at any point in time? Of course, but nothing short of finding someone with the unlimited capacity to put back into the market what it demands of it in resources and services, is really going to change anything. That was likely the Keynesian goal, except that Keynes never really ever attacked banking's business model either. As far as we are concerned there are to be separate pools of capital, personal and private from which finance will spring where it is needed and benefits business. Markets will be free to the extent that government does not intervene, including by inducing everyone to trade using their truly unbacked FORCED “legal tender” money (whether backed by silver or gold makes NO difference).

Credit limits in the proposed system are likely to be rationalized on terms of basic human needs demanded in diverse localities, rather than decided by public edict from the collective wisdom of “specialists” and other “planners” operating from some centralized control centre. We believe that the direction of history is away from people who try to rationalize away the obvious obtuseness of greater and greater centralization until they will be left without an audience for their views. There will probably be some unavoidable bitterness and gnashing of teeth.

The proposed money itself will have no intrinsic value but will be based on a fraction of the price of an ounce of gold on a particular date, and thereafter the trading prices for this money into any other government fiat currency on the planet will be based on how the daily price of gold rises or falls relative to the initial price, the Figure 1, as E. C. Riegel called it. Once initialized, this money, the Value Unit, would be independent of the prices of everything. People would establish reasonable prices for everything within this private monetary system; prices would seek their own levels. The result would be a steady yardstick of value that would not change over many many generations. The greater usefulness of this money would soon be apparent as it would be easier to establish standard prices worldwide. The value system this money would generate would not be affected by government spending.

But the most radical view, probably not original, that E. C. Riegel took was to whom the right of issue of money naturally belonged. He concluded, and so do we, that this right of issue is inalienable and rests solely with each one of us as individual human beings and TO NO ONE ELSE. This meant that in order to get his new system off the ground, Riegel advocated GIVING people the money to start trading. He advocated a system where the poor would get the money to purchase a subsistence to be determined by each community. He recognized that all the extra profit made by any business would come from those who continued to buy while they couldn't sell back into the market. This is precisely where any extra money should be coming from, not from excessive and stupid government spending that benefits insiders and puts millions out of work!

The current proposal advocated by this blog is for the acceptance of an independent Value Unit as a new measure of value in a strictly private monetary system, which disallows certain business creatures and at least for now, all governments. We do not want to base our new money on dollars, because people want something based on gold and silver as they perceive their dollars, euros, etc. don't buy as much as they used to last year, last month, last week, etc. So we say, that's fine because we need a fence around our monetary system, so none of us operating within it need ever hold any dollars, euros, yen, renminbi, etc. It's all the same to us; illegitimate public issue of money by governments that have usurped the inalienable right to create money, the very essence of freedom itself, from each human being on the planet. This amounts to much more than a redress of grievances, which is frankly pointless. This is our answer to state socialism; we will give the poor their right to survive, perhaps to thrive, by giving them the right to create the money to buy their subsistence to the benefit of the businesses in the areas that serve them along with everyone else.

For those with assets that transfer from THEIR system into ours, the answer is how much those things fetch in gold or silver rather than in dollars. The Value Unit currently in proposal started on 2 November, 2011 and at this writing, 12 May, 2013, has risen in purchasing power 16% over its inception. This is entirely due to the engineered collapse in the price of gold and silver. Had the currency been “pegged” to THEIR shifting prices for these metals, that would work out to a definite 16% loss over the same period. In terms of exchange in dollars, whereas the initial price for a Value Unit was $2.16, now it is $2.51. There was no fancy algorithm used, as with bit-coin, to enforce an unnecessary scarcity and there would never be any scarcity of money as exists under our present system. Scarcity has nothing to do with trade, it is if anything a detriment. We prefer to consider it irrelevant.

A lot of things become much clearer under a system like that proposed here. Many cost accounting and business planning functions would soon see the wisdom of smaller units of production, and with the elimination of limited liability from the picture, everyone would have to become more responsible, a lot of stupid and dangerous activities would simply no longer be affordable and we would soon right things; smaller IS better.

The entire system, a Value Exchange Network (VEN) is proposed as a set of local nodes, each known as an Independent Exchange (IE). They would determine and manage membership and account issues, settle transactions among members and earn their way based on set transaction fees (currently proposed one tenth of one percent .01%) They would have primary responsibility for verifying the acceptance of credit contracts (finance) but they would not be involved in the finance or credit businesses at all or ever. Those engaged in the finance business in this system would stand outside the IE's and take on their own risk based on sufficient resources to cover losses, simple as that.

Do we anticipate credit being harder or easier to get under the new system? It depends entirely on the market. There is much complaint about “misallocation of scarce capital,” but how is it otherwise with government issue and buying (spending) representing the interference that it is? We recognize of course that much “wealth” has been stolen over the last two generations and more, and we are well aware how government has helped itself and its friends. How could it have been otherwise given public government issue of money, loaned or emitted into existence makes little difference? What's really sad about it, is that one man in a million has even the slightest clue what's really going on.

E. C. Riegel saw much, but tended to exonerate the bankers, even hoping they'd work against their own business model to get his system started. That was based on the naive and accepted status of their money as a legitimate social function. As it turns out, finance does have such a function, it's just that it needs to be based on a sounder footing. We need a system that is decentralized, so that when it takes a hit in one place, a chain reaction doesn't result in crashing the entire system. Statists and other centralizers and assorted sociopathic control freaks out there, are seemingly unaware of natural limits to the size of any human enterprise. Limited liability masks this reality from everyone.

This is to be an international system that determines its own membership rules locally, but adopts the same money worldwide to manage business.  Money  is literally created and destroyed as needed by legitimate private and personal human need. Governments, non profits, foundations, etc. are fat in the economy that buy without any intention of selling anything back into society that anyone would willingly buy. At least the poor buy what everyone else wants and needs, creating an advantage for production of useful items rather than things nobody wants. As this new system takes off, governments will have to shrink in size and many institutions that enjoy prominence today may simply go away. We suspect that huge corporations once relieved of limited liability, will be unable to compete and disintegrate into much smaller units. We should see a return to lasting quality as a virtue and smaller competing production runs serving many diverse groups of people. Everyone in this system will acquire a reputation and be able to finance their labour through a process involving honest labour contracts. Businesses acquiring the float from employees who finance their own employment will be more concerned about them, since the labour market will become far more fluid than it is now. Everyone will want to have satisfied workers as well as happy customers.

Yes, the current money shall become worthless and banks will fail, but we can get through this as long as we can keep exchange afloat. Vieira says that Federal Reserve note “redemption amounts to exchanging intrinsically valueless rag currency for almost valueless slugs. And a right to use Federal Reserve Notes to pay taxes [legal tender] is of dubious economic benefit to the taxpayer whose wealth is expropriated through that very payment."

We're saying that FRN's represent illegitimate money because they are government issued rather than issued by the people. I don't care what the dang things are made of, people use money the way that's most convenient and don't think twice about whether it has any intrinsic value or not. Today's plastic swipe cards, yesterday's checks; these are all money just as much as those “valueless rag currency for almost valueless slugs” Vieira consistently bashes in his book, So what if a Constitutional dollar is 371.?? grains or whatever percent of a troy ounce of silver? It's a commodity that has a fluctuating value controlled by brokers in far away cities that have nothing to do with a local farmer's price for a dozen eggs or a local dairyman's price for a pound of butter or a gallon of milk. Proposing any money pegged to the moving price for a commodity decided by someone else is ... stupid!

What we propose instead is simply to merge the ends of THEIR pernicious dialectic; make the monetary unit a fraction of an ounce of gold (and comparable for silver) on a specific date and henceforth THAT will be the set of values upon which everything else lands. At 1,000 units to an ounce of gold on 2 November, 2011, that turns out to be a unit with a comparable dollar value of $2.16. If the price of gold falls, well it takes more dollars, yen, etc. to purchase a Value Unit in honest trade. If the price of gold surges above the initial vale, the Figure 1 may be raised but never lowered. This would actually tend to favour a harder currency over time.

What we can probably predict within this system is that all prices will seem lower, though each unit will buy more and labour costs will probably be higher. This is what we would expect. Over time we'd also tend to see very few who are really destitute and a lot more in a wider middle class with much less distance between the wealthy and the rest of society. Wealth is as we've said, not inanimate hunks of precious metals, but that which produces income, so it becomes necessary to determine in what rests one's wealth. For those who labour it will be their labour; for those with tools it will be their tools, their capital assets; for some it will be their savings, though we hope and trust that the avenues for what has been going on in financial markets over the course of our lifetimes shall be far fewer. Recall that all members must join where they are mutually acceptable in a mutually private arrangement. Certain kinds of businesses would be forbidden and would have to subsist on the fringes of the IE's, probably on a cash basis. Markets being what they are, there will always be a place to buy anything, but we do not have to accept them as members of our VEN.

We encourage Dr.Vieira, Bill Still and many others who still worship at the false shrine of state sponsored money issue to come to their senses and begin to see things from quite different perspectives. As for the US Constitution, it may become necessary to mount an unofficial but widely publicized audit of all facts concerning the ratification of every amendment after the 12th. We want the original 13th Amendment back if it was really ratified. We believe that the present 13th Amendment (the new 14th) was correctly ratified, therefore outlawing human slavery (thus disallowing corporations the rights of free people, since they are the slaves of their owners). We are especially aware of facts casting doubts on the actual and acceptable ratification of the 14th Amendment. If proved beyond doubt to have been FORCED upon the states, as we suspect, then we shall call for a wholesale repeal of every statute that is, was or has been based upon it and call for a nationwide and universal dissent, disregard, disrespect and boycott for any such unlawful measures based upon it until those laws are all repealed. We likewise seek the truth concerning all the rest, especially the 16th and 17th Amendments. It's high time that more public legislators were known for the number of laws they got repealed and the government agencies they closed than for the reverse.

That's some of our view. Let us know yours at

David Burton

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