Tuesday, March 4, 2014

#55 Honest Money

John Stadtmiller and Ron MacDonald were discussing money on John's show and the subject of the money we use to transact our business came up. They said that for a monetary reform to be real that the money would really have to belong to us and not someone else. THAT's the point gentlemen!

We on this blog know that all the government money anyone knows about all comes about the same way and it certainly does not belong to the people who earn it or work for it or get paid in it or pay others with it, and none of it even belongs to the governments that spend it or tax it either. What backs it up? Absolutely nothing except the FORCE the owners of the present organized money monopoly have their perpetual debtor governments use to make us pay them back some of it as taxes. These taxes largely go to pay the interest on the debt, not the principal of the debt itself, which grows ever larger, ultimately from start to finish, inception to crash of their money monopoly, remains always and forever unpayable (as was intended from the very beginning of letting governments borrow money).

That's why central banking and forcing governments to be “good credit risks” in a monopolistic game where only a few decide the fates of billions of people, is a fraud from the outset, which should be exposed as the organized criminal activity that it is. But, you can't really expect any justice for what has already been done as this criminal activity has been going on continuously for hundreds of years and has always involved getting its client states involved with waging wars. Banking and the military industrial complex go way back in history. Why is it that so few people know this? If they did know these things, would they change their actions? Would they decide not to work for certain organizations?

What does the government have to sell to us to cover what it buys supposedly for us? War, you say? That's right, but again, absolutely nothing of any real value. But people get paid right? And they have been involved in all sorts of contracts with the people who issue this money ... and it all has to keep going, or it will all do what? Recall that the music stops when someone either shouts, “I have no more money to pay you” or “I wont take your money.” If any “public” money reaches this status it is worthless.

Honest money would hold its value over time, it would neither be subject to inflation or deflation. It is said of gold that an ounce of it in Roman times would have bought you a nice pair of sandals, a tunic and belt, a toga, and perhaps a coat: today it would buy you a nice suit, a pair of shoes, a belt, a shirt and a tie. It is also said that in 1968 a thousand gold coins (ounces) would buy a nice 4 bedroom 2 bath house and the same number of coins would buy you a comparable house today. It is further said that you could have kept a Federal Reserve Note minted in 1949 and spent it yesterday and it would have lost 90% of its purchasing power.

I need not bother arguing the points. Gold and silver are considered stores of value whereas anything made of paper is not. Whether one believes this is a superstition or not doesn't matter. It certainly wont matter after the next inevitable crash of the present monetary system. The point that shall be made, we trust perfectly clear for the last time on this blog (no, probably not, as there are plenty of numbskulls out there who imagine they can get away with using something else), that any alternative to the present monetary system that fails to take precious metals into account from the very beginning is doomed to failure.

There are two “hard money” (they think it's honest but it's not) schools of thought afloat at the moment. The first kind we'll call the “hard core gold bug” mentality. The second, we'll call the paleo-conservative (Constitutionalist) mentality. They really don't differ very much.

The first wants nothing traded as money except gold and silver and that especially applies to long term contracts. Now let's face this reality and get it straight; if you have a gold coin in your possession, it belongs to you and when it is traded to someone else for something in exchange, that coin then belongs to that person and so on. Gold and silver coins are uniform anonymous things that can be traded and preserve privacy in transactions. The rules observed in trade using them are always by black market rules which we have defined as a completely settled transaction with no guarantees and no returns.

We have further asserted that all true cash behaves the same way and explains why cash is king. We have further maintained that in presence of anything that is cheaper by intrinsic nature to precious metals; paper, that these instruments will trade first, thus thwarting the goal of a freely trading and circulating money supply (a deceptive term implying that quantity of money -its commodity status- is an important consideration, when its only significance is to certain speculators who contribute nothing of value into their transactions).

The second kind of “hard money” mentalities advocate getting rid of all money but silver and gold and having us return to a standard Constitutional dollar. That's 371.25 grains of fine silver which is 24.06 grams or .77 troy ounces or a coin worth about $20 in today's prices. As we've said before, this would have been fine, except that those who put forth this definition back in 1792 failed to include some mechanism whereby their “dollar” would always have the same purchasing power as the coin of the specified description had at for instance the close of all business on the last day of 1792.

What would a Constitutional dollar have bought in 1792? That, gentlemen, is the question, not how much a silver Constitutional dollar of a particular weight might buy today. As it is, if a dollar in 1792 was determined to be a chunk of metal that today is worth around $20 Federal Reserve notes, “dollars” have certainly lost their purchasing power, though we certainly don't know what purchasing power was lost since 1792. Returning to a Constitutional silver based money system is therefore fundamentally impossible.

All we can do is propose a solution that takes precious metals into consideration from the very outset and is smart concerning Gresham's law. We certainly do not want anyone who has gold or silver to come forth and attempt to start up yet another fractional reserve banking scheme based on precious metals the day after the present system implodes in the latest predetermined catastrophe. The powers that be will plan to do exactly this themselves. The day after the collapse, they'll extend credit to their friends, who will buy up everything for a song, or less. You think they wont? Then, you obviously haven't a clue. It's been done a few dozen times already down through history. They never change their tricks.

In order to become competitive right from the start, we directly involve local precious metals dealers in all our exchanges involving what to us shall always be foreign money; all “public” money of any kind. These dealers will get more business buying and selling gold and silver for us than they ever imagined. It will definitely be worth their while.

The most often heard question is “what's backing your money” and they ALWAYS imply gold and silver, nothing else. Listen up! If you think you can make the average man accept any private money based on any other possible store of value, you're mistaken; a fool and an idiot. Don't be an idiot! 

[30 April, 2014: There is a better date for inception than 11/2/11 based on your ideas. That's the date that gold hit its all time high against the dollar on August 22, 2011 at $1,917.90. Source. 

This would have given us a Value Unit at $2.33 at inception and it would be over $3 right now. You also mentioned how some people really find any arbitrary date chosen for any reason other than the absolute best point in time as suspect. I would have to agree that we generally do. These matters will be discussed at the upcoming inaugural IVES conference this fall. Delegate recruitment is underway.  Notice that we are not surrendering a thing by accepting the inherent integrity of this suggestion.  Until this matter is resolved in closed session at a private conference this fall, we shall continue to post changes in the blog's hypothetical Valun here.]

E. C. Riegel was not original except for placing “credit clearing” at the centre of the question what is money. Money is that which enables split barter. It is backed each and every time it is used by nothing other than what it buys. If gold or silver are tendered, it is assumed that the gold and silver have some intrinsic value that partakes in the sale. The result is that those handling business using gold and silver should get lower prices for what they buy. In fact the usual practise was to price things in terms of “fair trade,” which meant trade in specie, and to “discount” all paper that was proffered; the buyer paying in paper notes might pay a substantially higher price based on the quality of his paper. Paper obtained its “quality” based on what it could be traded for, either specie or goods. What gave paper any currency was that it could be used to pay taxes. Otherwise dealers would rather not accept it. This is the way it was before 1850 and a lot of folks think it should go back to something like this.

But there wasn't enough money to maintain business as it was back then, probably largely because of usury, and there were bank panics and all the rest that goes along with not obeying natural law. Some “gold bugs” out there will tell you that nothing but silver should ever be accepted as payment for labour and nothing but gold should ever be proffered for land. But paper proves them all idiots and labour can be bought willingly with paper and will mark any offering to work for silver only as unemployed.

Our money solution is an independent measure of value (an international standard) that does not change, by which all else can and shall be measured for value in terms of trade. For now, we advocate instruments being both electronically enhanced and as paper V-Checks that have properties associated with cash. Swipe cards leave a trail and are not therefore strictly speaking cash. They are more like an electronic check. We will take any “public” money that comes into our exchanges and purchase precious metals with it that shall belong to the members of our exchanges. But our exchanges are NOT the same as a warehouse for precious metals where the money are receipts that are passed around. The money issued against it will NOT be based on the shifting sands of the precious metals prices, but on the increment of purchasing power established for a Value Unit as one thousandth part of an ounce of gold bullion on November 2, 2011 an easy day to remember. In plain English a Value Unit started at $2.16 which meant that $2.17 would have bought one on day of inception. A Value Unit shall never go lower than its inception price. Today, precious metals prices having fallen since inception, you'd need more of them to purchase the same increment or purchasing power; $2.68, a rise of 24% since inception. Therefore and thereafter all Value Units will be valued based on that initial transaction. This gives us worldwide exchange rates for all major “public” currencies.

Does this mean that Value Units are a good investment? We predict that they will maintain their purchasing power far better than any currency on the planet or silver and gold bullion and we can prove it. What happens whenever, if ever, gold and silver prices rise above their inception prices? We simply choose a new inception price that's higher, never lower, than the preceding one.

I was asked to show how this would be done and to describe the results.

1) At inception we chose a bid gold price of $2,160 the ounce which was 25% above spot on the day of inception, 11/02/2011. Each Value Unit begins at $2.16.

2) At some time in the future the spot price of gold goes to $2,000. A new inception is established at that price, since it was higher than the price at the previous inception. Each Value Unit at $2.50 becomes harder than before.

3) As dollars, etc. begin to approach Weimar meltdown stages, the price of gold surges past $4,000 an ounce. A new inception is once again established. In reality perhaps many inceptions were reached and accepted before this. At this point one Value Unit is worth $5 in trade and it becomes worthwhile to consider fractional representations of Value Units.

4) Perhaps within weeks or days, as dollars, etc. go into Weimar meltdown gold surges to $8,000 before the market for gold and silver freezes as no one will part with any precious metals for more worthless “public” money. At this level, each Value Unit is worth $10.

5) After a collapse, the price of gold falls rapidly back to $1,000 indicating few if any “public” notes left. But the new standard is a unit of measure that says it represents the purchasing power of what was $10 and now gold buys less than it did at that time. A Value Unit is worth $18.75 and one gets just 125 for an ounce of gold. 

6) As depression ensues, the true worth of gold is recognized and if there is a market for gold after that or dollars, or anything else, they want $500 for it spot. That works out to only 62.5 Value Units and each one is now worth $19.38 and a tenth of a Valun at $1.94 becomes the new default standard of trade. Prices in Valuns remain the same as they did near the beginning of whatever crisis comes along.

7) Then should gold once again rise to its first inception point, since the new inception stands at where gold was back at $8,000 each Value Unit is worth $17.98 and you'd receive 202.5 of them per ounce of gold traded.

A succession of Gold spot prices # of Valuns per gold oz Fair trade price of a Valun
1) At inception $1,620
2) At $2,000
New inception
3) At $4,000
New inception
4) At $8,000
New inception
5) At $1,000
6) At $500
7) At $1,620

We are not anticipating anything like this happening, though the scenario could unfold this way. This was an illustration to give some idea of how the Value Unit (Valun) would respond to precious metals prices. Purchasing power is preserved throughout.

But how are new inception points accepted? Three or more IE's request at the inception be raised due to a rise in the price of gold over the previous inception. IVES, the International Valun Exchange Society, which makes the determination of the Value Unit's exchange value for everyone in the VEN (there is only one, not many) then makes the change and it applies everywhere within the VEN. Notice that if and when the prices of precious metals plunge way down below the last inception, that the Value Unit's purchasing power remains where it did at the last inception. This design provides a perpetually hardening money over time.

We've taken a good hard look at “honest money” from the exchange standpoint. Let's now talk about E. C. Riegel's most amazing contribution to understanding money; that only the poor are entitled to create any of it. But how much should the poor be allowed to create?

Before deciding this, it is assumed incorrectly all the time that all the money in existence in an economy circulates in trade. Much of it in fact is tied up in business ventures of varying kinds, so it can't circulate or participate in every possible trade. Much foolishness is also exhibited to try and determine some optimal amount of money for any particular level of economic activity. We simply do not care about any of this as it only leads to appraisals of an economy and other human enterprises as ripe for mere price speculation. Honest money is working money, invested in businesses and such money invested cannot be easily liquidated from businesses without destroying them. This is certainly not the case with so called “investments” in “shares” of “public” limited liability, absentee owned, corporations. If one is making money from money without contributing anything of value, nothing could be simpler than to “invest” in these “securities” and take your chances, which is in most cases what stock trading amounts to. If you don't have a lot of money in the game, you're just on for the ride, and often not even that, you're on for the take.

We do not consider people as automatically functioning in social slots of the whimsical or other pseudo-scientific varieties concocted by various schools of social planning, and their social planners, as if any of these people even have what it takes to run a small business. 

We consider people as self determined. 

People will decide what they will do and will not do and for what price. People will decide what they will make and not make, what they will grow and not grow, and in each case the risks of each opportunity will be theirs.

The real split in this world is not between the political left and right but between freedom and tyranny. We are on the side of freedom. Therefore we shall have nothing to do with any social planning of any kind, from any quarter, period! If you want that, go join zeitgeist and see how well you do. We believe that people are better able to describe what they want than anyone else, and once they begin to see the clutches of tyranny lift, they will naturally spring into action toward whatever they desire to achieve.

We say that each human being has an inalienable right to issue their own money. We further say that this right always rests within the framework of the rights of others. We then say that these others are best those who know you best. That's why we say that independent exchanges (and their associated Valun counters) should serve local areas. We further say that we want members of local exchanges to be recommended by two other members and that all members have the legal right to live where the exchange operates and have lived in the said area for at least one year. This provision solves a lot of problems.

Within each locality, what passes for subsistence changes. There would be some attempt by each IE to establish what subsistence levels exist within each area and the amounts of money that indigent A members may create. It will usually be a fixed monthly number of Value Units. Though these Value Units may be spent into the VEN, they are not income from anyone as they proceed directly from the person who issued them. Only Value Units received could be considered as income subject to taxation.

Within each member's ledger, there are many records similar to a check register. Each record will have different fields representing different categories of Value Units. For A members only, they would have the following fields

Created Valuns = The number of Valuns created by the A member. This number will normally not fall.
Current Valuns = The number of Valuns the A member has on account. Most bills, checks, etc. are paid from this field.
Escrow Valuns = The number of Valuns held in escrow against payments to retire Credit Contracts.

Any A member will be able to adjust Current Valuns and Escrow Valuns. Created Valuns will be determined by agreement with one's local IE. If an A member has Valuns in Created Valuns, they may move some into Current Valuns. Any check they write or V-Checks they buy come from this field. Any Valuns the A member receives from another member also go into this Current Valuns field. The Escrow Valuns field is used as a convenience to manage regularly occurring debt payments which would all flow from this field. Some users may not even use it.

But why would anyone really want Value Units? Right now, there is no market for them. Most people assume plenty of things when you talk to them about the money they hold and use. Some think any of it, even Value Units, is somehow evil. But what if when people looked into their wallets they saw obvious pieces of money that came from themselves, that really did belong to them, that they really earned, that none could take away except through FORCE, that could and should be defended as one would anything else that is one's private property?

We've said that the times are ripe for an alternative before the inevitable next concocted collapse occurs, if they can even control it when it happens. Bitcoin is rapidly fading, just as we predicted. [6 March, 2014: CEO Of Bitcoin Exchange Dies In Singapore] It is nothing but an electronic commodity mascaraing as money. We said we agreed with Greenspan concerning gold (and silver), that it isn't money. Money is that which splits barter, it's instrument does not require it to have any intrinsic value and Gresham's law predestines the cheapest means of exchange will circulate ahead of all others and will consequently drive the more expensive means out of circulation.

We'll review our proposals for “free money” to establish this system and get it moving:

1) In the beginning, every A member is a “red inker” as we give them each 200 VU's to get started; as his community, we accept that A members are entitled to create an initial 200 Value Units. Right now 200 Valuns amounts to $536 in purchasing power. Now just do some simple math.

100 members = 20,000 Value Units = $53,600
1,000 members = 200,000 Value Units = $536,000

10,000 members = 2,000,000 Value Units = $5,360,000
50,000 members = 10,000,000 Value Units = $26,800,000

That's just for your average community served by one IE perhaps having 4 Valun counters. We aren't done yet.

2) Pensioners will be given particular attention, especially military veterans, police veterans, anyone receiving or promised any pension from whatever source. Anyone on Social Security will be similarly granted the ability to issue comparable numbers of Valuns. 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. What we're most likely to do is issue a third kind of contract that recognizes all the particulars of each pension and then associates a monthly count of Valuns that would be added to the Created Valuns field mentioned above. Obviously this could result in considerable stores of purchasing power for a VEN start up.

We will use pensions as benchmarks to establish pools of liquidity where it is most needed, fully anticipating that as more value is traded through the VEN in both labour and goods, the actual amount of new money created will tend to diminish over time. For one thing, we do not see pensions as a means for one group of people to continue to buy off another group of people for having stolen their purchasing power as well as the livelihoods of themselves and their posterity. As governments and their backers fail, pensions will become “unsustainable” and all the grabbing after government handouts will cease. It will then be up to you, yes you, yourself. What are you capable of doing? What of true value will you produce to make the world better for you having been here? [And NO, we certainly do not intend to infer that we accept the role of some self-appointed Marxist.  It would be a matter of natural forces which include one's family, close associates and  friends acting and operating under normal, rational and understandable contexts, etc. ]  Do you care or are you a slug willing to remain a slug for as long as possible believing in your victimhood as some condition requiring state action? Recall we stand for freedom not tyranny. We stand for the freedom of the John Galts to achieve anything they can without being harassed by states. But we stand for the freedom of every man or woman to achieve whatever or nothing as they choose. Of course, rewards will go where they always do under natural law. We'll have more to say about that in a forthcoming paper.

3) As B members join, through their A members, they will earn additional float through self financing of their employees. We expect that this will eventually form the lion's share of all money flowing through the VEN, representing the universal fact that marketable value originates in applied human labour and is expressed as money, in this case as Value Units. 

Finally, we will have an important announcement to make in the not too far distant future.

David Burton

[8 March, 2014:
I think your people should see this. It's crude. I used gold prices in euros and tracked a comparison with projected Valuns. Each “inception” forms a floor. There are 4 in your example (A, B, C and D on chart). Above floor, Valuns trade at premium to LAST inception. You want Valuns to trade at premium. When Valuns begins trading at discount to its inception, the price of precious metals has risen, the inception is raised. If then prices of precious metals fall, Valuns remains above its floor and in any trade to buy one, amount of precious metals to buy same Valuns set by inception must go up. I hope that's right. Claus, Denmark

Yes, Claus. Purchasing power of each Valun is preserved; each Valun becomes harder; capable of buying more and expensive compared with anything else, including precious metals. This is done by design applying very simple rules which actually derive from E. C. Riegel's original intentions. He based his Valun on a US dollar at a certain point in time, a 1939 dollar or a 1949 dollar, etc. If there had been a situation where the actual value of US dollars had hardened since inception, Riegel would most certainly have suggested a new inception to preserve purchasing power of his Valun. Thereafter, the Valun based on its new harder US dollar, preserves the extra purchasing power of succeeding Valuns. Now realistically, absolutely any date could be chosen, but the best dates are where that which becomes the basis for your Valun has the most value in trade as measured in price. It would be measured as the high side for precious metals and the low side for all paper currencies. Hopefully this should be simple to understand. It's basic mathematics. There's no hocus pocus. There's no confusion. The trade value between Valuns and all other currencies is handled correctly and easily and without effort.]

[28 March, 2014: You know David, you talk about honest money. But what you really need is honest people or it doesn't matter how honest the money is. How do you expect to find honest people to run your monetary system?

The closest this blog has gotten to tackling this aspect is in #32 Matters of Respect and Trust. 

Since writing that paper, I have contemplated not how similar people are, how “equal” some political ideologue wishes them to be, but how different various groups of people are and even within these groups, how each individual makes their own decisions about how to take best advantage of their situations in life which are of course usually changing. Rather than fostering and supporting the whimsical and totalitarian objectives of disinterested globalists, we wish to promote the right to these differences and we believe that the result will be a better world for everyone. As for honesty, the best we can do is to suggest that generally people would prefer to be frank and honest with each other regardless of who they are, which groups they are in, their genders, races, etc. What we'd like to offer is a system that, to the best of our ability, promotes honesty in dealing with each other concerning purchases, the value of our labour or the value of credit allowed each of us by our available communities.]


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