Give me some money ..

2015-11-21T03:37:00.000+02:00

Money is not the goal, money has no value. The value comes from the dreams money helps achieve.

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Goldman Sachs Doesn’t Have Clean Hands in Greece Crisis

2015-07-17T21:17:00.000+03:00

By Pam Martens and Russ Martens: June 30, 2015

Tens of Thousands Protest in Front of the Greek Parliament Against Austerity Plan for Greece, Evening of June 29, 2015

Are Goldman Sachs executives Lloyd Blankfein, Gary Cohn and Addy Loudiadis losing any sleep over elderly pensioners waiting outside shuttered banks in Greece, desperately trying to obtain their pension checks to pay their rent and buy food? Are these Goldman honchos feeling a small pang of conscience over the humiliation by creditors of this once proud country? Perhaps Blankfein, who famously espoused that he’s “doing God’s work” might shed a tear or two for the small child clinging to her elderly Grandmother’s hand as she searches in Athens for an ATM that will give her $66 from her bank account – the maximum allowed per day under the newly imposed capital controls.

According to investigative reports that appeared in Der Spiegel, the New York Times, BBC, and Bloomberg News from 2010 through 2012, Blankfein, now Goldman Sachs CEO, Cohn, now President and COO, and Loudiadis, a Managing Director, all played a role in structuring complex derivative deals with Greece which accomplished two things: they allowed Greece to hide the true extent of its debt and they ended up almost doubling the amount of debt Greece owed under the dubious derivative deals.

A February 2012 BBC documentary on the Goldman Sachs deal provides a layman’s view of the dirty underbelly of the deal, calling it “a toxic import” from America that is “hastening” the downfall of Greece.

On March 5, 2012, Nick Dunbar, who appears in the BBC documentary on the Goldman Sachs deal and author of The Devil’s Derivatives, penned a revealing article for Bloomberg News with Elisa Martinuzzi. The writers describe the Goldman Sachs deal with Greece as follows:

“On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said…

“A gain of 600 million euros represents about 12 percent of the $6.35 billion in revenue Goldman Sachs reported for trading and principal investments in 2001, a business segment that includes the bank’s fixed-income, currencies and commodities division, which arranged the trade and posted record sales that year. The unit, then run by Lloyd C. Blankfein, 57, now the New York-based bank’s chairman and chief executive officer, also went on to post record quarterly revenue the following year…

“The revised deal proposed by the bank and executed in 2002, was to base repayments on what was then a new kind of derivative — an inflation swap linked to the euro-area harmonized index of consumer prices…

“That didn’t work out well for Greece either. Bond yields fell, pushing the government’s losses to 5.1 billion euros, according to an analysis commissioned by Papanicolaou. It was ‘a very bad bet,’ he said in an interview.”

The deal was restructured again in 2005 according to the Bloomberg article, this time locking in the 5.1 billion euro debt.

For the unschooled to the ways of Wall Street, one might jump to the conclusion that Greece and its finance officials were knowing participants in the deal. That would be a reasonable assumption were it not for counties and cities and school districts across America that were similarly fleeced and hoodwinked by investment banks on Wall Street.

In March 2010, the Service Employees International Union (SEIU) released a study showing that from 2006 through early 2008, Wall Street banks are estimated to have collected as much as $28 billion in termination fees from state and local governments who were desperate to exit abusive derivative deals. That amount does not include the ongoing outsized interest payments that were, and still are being paid in some cases. Experts believe that billions of these abusive derivative deals may still remain unacknowledged by embarrassed municipalities.

Back in 2010 when German Chancellor Angela Merkel first heard of these derivative deals to hide sovereign debt among European Union partners, she had this to say: “It’s a scandal if it turned out that the same banks that brought us to the brink of the abyss helped to fake the statistics.”

Well, that’s exactly what happened. Wall Street padded its profits with these deals in order to extort massive bonuses for its executives from its shareholders on the basis that it was “doing God’s work,” when in fact it was catastrophically leveraging up the global economy with secret, off-balance-sheet debt deals. Wall Street then crashed the global economy in 2008 to 2009, just as it had from 1929 to 1932. And the people who structured these deals not only still have their jobs but they’ve received promotions and ever higher compensation while the people of Greece struggle to buy medicine and food.

Given this undeniable set of facts, Merkel’s choice of the word “scandal” to describe the unfolding Greek tragedy seems perhaps a bit mild.

http://wallstreetonparade.com/

Why is this Dutch city giving residents free money?

2015-07-17T21:13:00.002+03:00

Starting this fall, the Dutch city of Utrecht will begin an ambitious yearlong experiment: giving monthly checks to numerous people already on welfare, no strings attached.

The concept is known as a basic income.

It affords citizens a standard amount of money to cover expenses, ranging from major health costs to quick trips to the grocery store, on top of their other sources of revenue.

Richard Nixon gave a similar idea a try in the 1960s. A decade later, Canadaconducted its own experiment. And in 2016, Switzerland is slated to hold a referendum on implementing basic income.

Basic income has yet to emerge in full force partly because of logistics and partly because of fear of abuse. But that fear may be misguided, at least in the Netherlands, according to those conducting the experiment.

“The current rules in welfare are bureaucratic and, in a way, based on mistrust,” says Jacqueline Hartogs, spokeswoman for Victor Everhardt, Utrecht alderman for work and income.

Welfare recipients in Utrecht lose their benefits if they can’t find a job, signaling that mistrust, Hartogs tells Business Insider.

“In our scientific experiment,” she says, “we will approach people with less or no rules, to see whether they still make an effort.”

Researchers from the city council and University of Utrecht will separate at least 250 welfare recipients into five groups: a control group operating under the current laws, three groups with fewer rules, and an unconditional income group that receives money no matter what.

If the system pans out favorably, it could be the first concrete example that basic income works.

Whether it expands outside Europe, however, is another matter, says Almaz Zelleke, a New York University political scientist and basic income expert.

The small size of cities like Utrecht could underpin the success of basic income (the city’s population: 311,367).

The Netherlands is also somewhat anomalous among European countries, as it boasts the highest percentage of part-time workers.

“So perhaps there is a greater openness to the idea of providing a floor of income security on which citizens can build higher incomes with part-time work,” Zelleke says.

At least going by the statistics, Utrecht’s model of trust doesn’t seem to translate across the pond.

A 2012 poll showed 83% of Americans believe people should be required to work to receive welfare. Otherwise, we’re apt to use the dreaded H-word: handout.

This article is published in collaboration with Business Insider. Publication does not imply endorsement of views by the World Economic Forum.

Author: Chris Weller joined Business Insider in 2015 as an Ideas Reporter.

A Comparative Chronology of Money

2015-04-03T14:00:00.000+03:00

http://projects.exeter.ac.uk/RDavies/arian/amser/chrono.html

Democracy Realized

2015-04-03T12:30:00.000+03:00

We must have a new pursuit of Democracyin the market places instead of the capitols of the world. DEEP IN THE MORES of man has ever been the ideal of liberty and, linked with it, the social consciousness of equality of opportunity, or democracy. Democracy, the agent, would secure liberty, the ideal. How to implement democracy has been the problem of the centuries. The implementation thus far has been political, and the method has been the consent of the governed. Obviously, unanimous consent cannot be hoped for, so recourse is had to the will of the majority. The rule of the majority is therefore the highest ideal conceivable in the political sphere. This leaves, at best, a tyranny over the minority. Is such an ideal worth striving for? There is no choice on the political plane. We must either accept this ideal or turn from the political implementation of democracy to another. Fortunately, there is now the hope of economic democracy through a true monetary system that will realize the dream of democracy. Money can be the perfect register of desire and appraiser of satisfactions. It is the means of keeping man ever attuned to his fellow man. It is a court of arbitration whereunder differences may be easily adjusted. It can be the steady uplifter of the social order. It can be the minimizer of taxation and political intrusions. It can be the preserver of peace. It can dissolve the bounds of social strata. It can make competition perfected cooperation. It can provide security. It can make every voter win the election. It can govern by the unanimous consent of the governed. There are no majorities or minorities in a money election. The vote is unanimous, and it is all cast for the individual. He shoves his ballot across the counter and takes the winnings. Other individuals are doing the same; nobody is the loser. Everybody has his choice. The election is constant. The campaign of advertising and sales appeal to the voter is incessant. The voting goes on every minute of the day. The candidates are innumerable commodities and services, none of which can command the voters' continued support without continued satisfaction. There are no terms of election. There are no age, residence, or citizenship qualifications for the electors. There are no guarantees of permanence to the elected. All is in constant flux, responsive to the wish and whim of the elector. This is democracy idealized and realized. But are not the ballots unfairly distributed? We are coming to that. The point is that money offers possibilities that can never even be dreamed of in the political realm. We must pursue this promise and turn from political action if we would realize democracy. Granted a fair distribution of the money ballots, the monetary election system of exchange can realize the ideal democracy. Such fair distribution has never been accomplished. But it can be. If the smallest fraction of effort had been devoted to the pursuit of democracy in money that has been devoted to chasing the comparatively low ideal of democracy in the political realm, we would now be enjoying, through the monetary system, the ultimate democracy. ven the low ideal of the rule of the majority has never been attained in political democracy. It is doubtful whether the majority has ever prevailed at the ballot box, when we count those qualified voters whose interest could not be sparked sufficiently to visit the polls. In the United States, where the voting ratio is probably the highest, one quarter of the qualified electors has been sufficient to carry an election. But even this segment does not govern; it merely decides who shall govern, and the governors thus chosen govern the nonelecting majority as well as the electing minority. Representative government is but limited dictatorship, inasmuch as political democracy gives the representative no formal or official cue to the action desired by his constituency. Granted that he is honest and conscientious, he still must fall back upon his own judgment of what is right or guess what his constituents might prefer. By this process our millions of statutes have been molded. On top of these statutes have been proclaimed millions of court decisions, also based upon guesses as to what the law makers intended and colored by that nebulous substance, public opinion. Even if it were possible for the citizen to register his will upon all questions that are involved in political government, he could not spare the time from his task of making a living. But in the very course of making a living, he is automatically registering his preference on Main Street several times a day through his money ballots. Compare the facility of this with political elections once a year or two or four years. Our markets are our true polling places, where farmer, manufacturer, wholesaler, retailer and consumer are constantly accepting or rejecting proposals. Why do we beguile ourselves with a sham democracy when we have the machinery for a perfect one? But there is sham also in our potentially ideal democracy, the monetary system. This sham is the creature of the mother sham, political democracy. Our monetary system is a political creation, and thus the number of money ballots and their power that each of us can cast in the market places is influenced by political action. Thus we not only pursue the folly of political democracy, but through its inevitable miscarriage we defeat also the operation of a true democracy in our daily exchanges. To attain democracy, we must not only renounce the false premise of political realization, but we must rescue money, the true provider of democracy, from the destructive influence of the state. Once we have separated money from state, we shall find that the activities and interventions of government may be greatly curbed. Through a monetary democracy, human aspirations will be attainable, and the functions of the state will be very much confined. Money joined to state will inevitably trend toward socialization. Separated, it can be our liberator.

Ignorance of Money

2015-04-03T09:30:00.000+03:00

WRITING to Thomas Jefferson in 1787, John Adams said, "All the perplexities, confusion and distress in America arise from downright ignorance of the nature of coin, credit and circulation." Downright ignorance is the proper term, and it still abides with us. It applies to our academies, our counting houses, our legislatures, and the man in the street. We do not know what money is, what its virtues or vices spring from, what are the natural laws governing it, nor its influence in determining the trend of a people toward democracy or dictatorship.

Two forces are now pressing for its solution. One is the increasing specialization of labor, which requires man to make more exchanges in ratio as he reduces his selfsufficiency. In other words, the more man reduces his part in the production of the whole product, the more exchanges are necessary and hence the greater use of money. The other force making the solution of the money problem imperative is the growth of dictatorship and the contraction of democracy in ratio as governments exert the money issuing power.

Herbert Spencer, writing in Social Statics, said: That laws interfering with currency cannot be enacted without the reversal of state duty, is obvious; for either to forbid the issue, or enforce the receipt of certain notes or coin in return for other things, is to infringe the right of exchange——is to prevent men making exchanges which they otherwise would have made, or is to oblige them to make exchanges which otherwise they would not have made.

And further: So constantly have currency and government been associated, so universal has been the control exercised by the law givers over monetary systems, so completely have men come to regard this control as a matter of course, that scarcely anyone seems to inquire what would result if it were abolished.

Perhaps in no case is the necessity of state superintendence so generally assumed, and in no case will the denial of that necessity cause such surprise. In Spencer's day, the specialization of labor and the need of free monetary exchanges had not been so highly developed as in our day. His challenge to government money power therefore passed unnoticed. But we must heed it now. Let us dare to question the propriety of government money power——and let us speculate on "what would result if it were abolished.””

Another Englishman, Arthur Kitson, writing in 1894 in A Scientific Solution of the Money Question, said: To the average man, a currency that has not the authority or stamp of government is inconceivable; and yet there is no good reason why communities should not create and control their own currency without the aid or intervention of governments, just as they incur debts or liabilities without such aid or intervention.

Is it true that, in the language of Spencer, "to forbid the issue, or enforce the receipt of certain notes or coin is to infringe the right of exchange?" And is it further true that, in the words of Kitson, "there is no good reason why communities should not create and control their own currency?" Freedom of exchange is now so imperative, and centralization of political power so threatening, that it behooves us to inquire whether our economic and political ills and the threat to peace are not due to misplacement of money power in the state——and whether and how that power might better be exercised by the people for progress, prosperity and peace.

The Credit Theory of Money

2015-04-03T08:30:00.000+03:00

By A. Mitchell Innes

From The Banking Law Journal, Vol. 31 (1914), Dec./Jan., Pages 151-168.

[Editor's Note. – So much has been written on the subject of "money" that a scientific Writer like Mr. Innes is often misunderstood. Many economists and college professors have differed with the statements made in his first paper, but it seems that none were able to disprove his position. Following this number there will appear a symposium of criticisms and replies to the first paper, and we cordially invite criticisms and replica to this his second paper.]

The article which appeared in the May, 1913, number of this JOURNAL under the title "What is Money?" was a summary exposition of the Credit Theory of money, as opposed to the Metallic Theory which has hitherto been held by nearly all historians and has formed the basis of the teaching of practically all economists on the subject of money.

Up to the time of Adam Smith, not only was money identified with the precious metals, but it was popularly held that they formed the only real wealth; and though it must not be thought that the popular delusion was held by all serious thinkers, still, to Adam Smith belongs the credit of having finally and for all time established the principle that wealth does not reside in precious metals.

But when it came to the question of the nature of money, Adam Smith's vision failed him, as the contradictory nature of his statements attests. It could not have been otherwise. Even to-day accurate information as to the historical facts concerning money is none too accessible: in the day of Adam Smith, the material on which to found a correct theory of money was not available, even had he possessed the knowledge with which to use it. Steuart perceived that the monetary unit was not necessarily identified with coinage, Mun realized that gold and silver were not the basis of foreign trade, Boisguillebert had boldly asserted that paper fulfilled all the functions which were performed by silver. But apart from a few half-formed ideas such as these, there was nothing which could guide Adam Smith in the attempt to solve the problems of his part of his Inquiry, and, having convinced himself of the truth of his main contention that wealth was not gold and silver, he was faced with two alternatives. Either money was not gold and silver, or it was not wealth, and he inevitably chose the latter alternative. Herein, however, Adam Smith came into conflict not with a popular delusion but with the realities of life as learnt from the universal experience of mankind. If money is not wealth, in the common acceptation of the word as meaning that mysterious "purchasing power" which alone constitutes real riches, then the whole of human commerce is based on a fallacy. Smith's definition of money as being, not wealth, but the "wheel which circulates wealth," does not explain the facts which we see around us, the striving after money, the desire to accumulate money. If money were but a wheel, why should we try to accumulate wheels. Why should a million wheels be of more use than one, or, if we are to regard money as all one wheel, why should a huge wheel serve better than a small one, or at any rate a moderate one. The analogy is false.

Much has been written since the days of Adam Smith on the subject of money, and much useful investigation has been made, but we still hold to the old idea that gold and silver are the only real money and that all other forms of money are mere substitutes. The necessary result of this fundamental error is that the utmost confusion prevails in this branch of the science of political economy, as any one will see who cares to take the trouble to compare the chapters on "Wealth," "Money," "Capital," "Interest," "Income" in the works of recognized authorities since Adam Smith. There is hardly a point on which any two agreed.

How complete the divorce is between the experience of daily life and the teaching of the economists can best be seen by reading, for example, Marshall's chapter on capital, with its complicated divisions into national capital, social capital, personal capital, etc. Every banker and every commercial man knows that there is only one kind of capital, and that is money. Every commercial and financial transaction is based on the truth of this proposition, every balance sheet is made out in this well-established fact. And yet every economist bases his teaching on the hypothesis that capital is not money.

It is only when we understand and accept the credit theory, that we see how perfectly science harmonizes with the known facts of everyday life.

Shortly. The Credit Theory is this: that a sale and purchase is the exchange of a commodity for credit. From this main theory springs the sub-theory that the value of credit or money does not depend on the value of any metal or metals, but on the right which the creditor acquires to "payment," that is to say, to satisfaction for the credit, and on the obligation of the debtor to "pay" his debt and conversely on the right of the debtor to release himself from his debt by the tender of an equivalent debt owed by the creditor, and the obligation of the creditor to accept this tender in satisfaction of his credit.*

Such is the fundamental theory, but in practice it is not necessary for a debtor to acquire credits on the same persons to whom he is debtor. We are all both buyers and sellers, so that we are all at the same time both debtors and creditors of each other, and by the wonderfully efficient machinery of the banks to which we sell our credits, and which thus become the clearing houses of commerce, the debts and credits of the whole community are centralized and set of against each other. In practice, therefore, any good credit will pay any debt.

Again in theory we create a debt every time we buy and acquire a credit every time we sell, but in practice this theory is also modified, at least in advanced commercial communities. When we are successful in business, we accumulate credits on a banker and we can then buy without creating new debts, by merely transferring to our sellers a part of our accumulated credits. Or again, if we have no accumulated credits at the moment we wish to make a purchase, we can, instead of becoming the debtors of the person from whom we buy, arrange with our banker to "borrow" a credit on his books, and can transfer this borrowed credit to our seller, on undertaking to hand over to the banker the same amount of credit (and something over) which we acquire when we, in our turn, become sellers. Then again, the government, the greatest buyer of commodities and services in the land, issues in payment of its purchases+ vast quantities of small tokens which are called coins or notes, and which are redeemable by the mechanism of taxation, and these credits on the government we can use in the payment of small purchases in preference to giving credits on ourselves or transferring those on our bankers.

So numerous have these government tokens become in the last few centuries and so universal their use everyday life – far exceeding that of any other species of money – that we have come to associate them more especially with the word "money." But they have no more claim to the title than any other tokens or acknowledgements of debt. Every merchant who pays for a purchase with his bill, and every banker who issues his notes or authorizes drafts on the Treasury, or which puts its stamp on a piece of metal or a sheet of paper, and of all the false ideas current on the subject of money none is more harmful than that which attributes to the government the special function of monopolizing the issues of money. If banks could not issue money, they could not carry on their business, and when the government puts obstacles in the way of the issue of certain forms of money, one of the results is to force the public to accustom itself to other and perhaps less convenient forms.

As can be clearly proved by careful study of history, a dollar or a pound or any other monetary unit is not a fixed thing of known size and weight, and of ascertained value, nor did government money always hold the pre-eminent position which it to-day enjoys in most countries – not by any means.

In France not so long ago, not only were there many different monetary units, all called by the same name of livre, but these livres – or such of them as were used by the government – were again often classified into forte monnaie and faible monnaie, the government money being faible. This distinction implied that the government money was of less value than bank money, or, in technical language, was depreciated in terms of bank money, so that the bankers refused, in spite of the legal tender laws, to accept a livre of credit on the government as an equivalent of a livre of credit on a bank.

The kings and their councillors were often puzzled by this phenomenon, and the consequences which flowed from it. Time and again they issued money which they certainly believed to be "forte," and declared to be so by law, and yet soon after, they had to avow that in some mysterious manner, it had "devenu faible," become weak.

With the apparent exception of England, where the depreciation of government money, though considerable, was far less than on the continent, a similar situation was general throughout Europe; in countries in which there was a dominant bank, like Amsterdam, Hamburg and Venice, the higher standard being known as "bank money," and the lower standard as "current money." Out of this situation rose another interesting and important phenomenon: - while the wholesale trade, which dealt with the bankers followed the bank standard, the retail trade which dealt largely through the medium of the government coins, naturally followed more or less closely the government standard* and prices rose as the standard fell in value. In the German States, where there were literally hundreds of monetary standards, all called the same name of Mark+ the history of money is particularly involved, and the fact that the retail trade always followed a lower standard than did the wholesale trade in the same place, has led historians to believe that the latter used as their standard a Mark weight of pure silver, while the retail trade used the Mark weight of the debased silver used in the coins. But this idea can be conclusively shown to be erroneous, and the "mark of pfennigsilber" did not refer to the weight of the coins, but to the quantity of pfennig-coins (the only coins known in Germany during the greater part of the middle ages) required to make up the money mark.

As may well be imagined, much confusion usually prevailed in money matters, and the extreme difficulty of settling in what standard debts should be paid and contracts, especially as regards rents should be fulfilled, often caused serious discontent. To remedy this the kings of France attempted, probably with little success, to introduce by legislation certain rules as to the standard which should be applied to the various cases which might arise.

We, who are accustomed to the piping times of peace and to long periods of prosperity and government stability hardly realize how unstable a thing any given monetary unit may be. When we in the United States hear of a fall in the value of the paper of some bank or the money of some foreign government and see it quoted at a discount in terms of the dollar, we are accustomed to think of the dollar as an invariable unit and of the depreciated money as being something which has departed in value from our invariable standard. But when we take the trouble to study history we find that the dollar of the American Government and the pound of the English Government have by no means always been the stable things we now imaging them to be. The English pound was in use in all the American colonies, and yet the pound of each differed from that of the mother country. In the early days of the American Union, the different official monies differed from the standard in use in business and were at a heavy discount in terms of the latter.

The notion that we all have to-day that the government coin is the one and only dollar and that all other forms of money are promises to pay that dollar is no longer tenable in the face of the clear historical evidence to the contrary. A government dollar is a promise to "pay," a promise to "satisfy," a promise to "redeem," just as all other money is. All forms of money are identical in their nature. It is hard to get the public to realize this functional principle, without a true understanding of which it is impossible to grasp any of the phenomena of money. Hard, too, is it to realize that in America to-day, there are in any given place many different dollars in use, for the fact is not so apparent in our days as it was in former times. Let us suppose that I take to my banker in, say, New Orleans, a number of sight drafts of the same nominal value, one on the Sub-Treasury, one on another well-known bank in the city, one on an obscure tradesman in the suburbs, one on a well-known bank in New York, and one on a reputable merchant in Chicago. For the draft on the Sub-Treasury and for that on the bank in the city, my banker will probably give me a credit for exactly the nominal value, but the others will all be exchanged at different prices. For the draft on the New York bank I might get more than the stated amount, for that of the New York* merchant, I should probably get less, while for that one on the obscure tradesman, my banker would probably give nothing without my endorsement, and even then I should receive less than the nominal amount. All these documents represent different dollars of debt, which the banker buys for whatever he thinks they may be worth to him. The banker whose dollars we buy, estimates all these other dollars in terms of his own. The dollar of a first class banker is the highest standard of credit that can be obtained generally speaking, though the standard of a first class banker in a city like London or New York may be worth to a provincial banker somewhat more than his own money. The dollar of government money in America is equal to that of bank money, because of the confidence which we have come to have in government credit, and it usually ranks in any given city slightly higher than does the money of a banker outside the city, not at all because it represents gold, but merely because the financial operations of the government are so extensive that government money is required everywhere for the discharge of taxes or other obligations to the government. Everybody who incurs a debt issues his own dollar, which may or may not be identical with the dollar of any one else's money. It is a little difficult to realize this curious fact, because in practice the only dollars which circulate are government dollars and bank dollars and, as both represent the highest and most convenient form of credit, their relative value is much the same, though not always identical. This apparent stability of government money in our day obscures the phenomenon which was familiar to our forefathers.

The one essential condition to the stability of all money by whomsoever issued is, as I explained in the former article, that it should be redeemable at the proper time, not in pieces of metal, but in credit. A credit redeems a debt and nothing else does, unless in virtue of a special statute or a particular contract.

The main obstacle to the adoption of a truer view of the nature of money is the difficulty of persuading the public that "things are not the way they seem," that what appears to be the simple and obvious explanation of every-day phenomenon is incompatible with ascertainable, demonstrable facts – to make the public realize, as it were, that while they believe themselves to be watching the sun's progress round the earth, they are really watching the progress of the earth round the sun. It is hard to disbelieve the evidence of our senses.

We see a law which establishes in the United States a "standard dollar" of a definite weight of gold of a certain fineness; we see a law making the acceptance of these coins in payment of debt obligatory on the creditor – a law which is cheerfully obeyed without question; we see all commercial transactions carried on in dollars; and finally we everywhere see coins (or equivalent notes) called dollars or multiples or fractions thereof, by means of which innumerable purchases are made and debts settled. Seeing all these things, what more natural than to believe that, when the Law declared a certain coin to be the Standard Dollar, it really became so: that when we pronounce the word "dollar" we refer to a standard coin, that when we do our commercial transactions we do them, theoretically at least, in these coins with which we are so familiar. What more obvious that when we give or take a "promise to pay" so many dollars, we mean thereby a promise to pay golden coins or their equivalent.

Suddenly we are told that our cherished beliefs are erroneous, that the Law has no power to create a standard dollar, that, when we buy and sell, the standard which we use is not a piece of gold, but something abstract and intangible, that when we "promise to pay" we do not undertake to pay gold coins, but that we merely undertake to cancel our debt by an equivalent credit expressed in terms of our abstract, intangible standard; that a government coin is a "promise to pay," just like a private bill or note. What wonder if the teacher of the novel doctrine is view with suspicion? What wonder if the public refuses to be at once convinced that the earth revolves around the sun?

So it is, however. The eye has never seen, nor the hand touched a dollar. All that we can touch or see is a promise to pay or satisfy a debt due for an amount called a dollar. That which we handle may be called a dollar certificate or a dollar note or a dollar coin; it may bear words promising to pay a dollar or promising to exchange it for a dollar coin of gold or silver, or it may merely bear the word dollar, or, in the case of the English sovereign, worth a pound, it may bear no inscription at all, but merely a king's head. What is stamped on the face of a coin or printed on the face of a note matters not at all; what does matter, and this is the only thing that matters is: What is the obligation which the issuer of that coin or note really undertakes, and is he able to fulfill that promise, whatever it may be?

The theory of an abstract standard is not so extraordinary as it first appears, and it presents no difficulty to those scientific men with whom I have discussed the theory. All our measures are the same. No one has ever seen on ounce or a foot or an hour. A foot is the distance between two fixed points, but neither the distance nor the points have a corporeal existence. We divide, as it were, infinite distance or space into arbitrary parts, and devise more or less accurate implements for measuring such parts when applied to things having a corporeal existence. Weight is the force of gravity as demonstrated with reference to the objects around us, and we measure it by comparing the effect of this force on any given objects with that exerted on another known object. But at best, this measure is but an approximation, because the force is not exerted everywhere equally.

Our measure of time is a thing to which no concrete standard can be applied, and an hour can never be reckoned with perfect accuracy. In countries where solar time is used, the hour is the twenty-fourth part of the time reckoned from sunset to sunset, and the standard is therefore of the roughest. But because the people who calculate thus live in countries where the difference between the length of a day in summer and in winter is not so great as it is further north, they feel no inconvenience from this inaccuracy, and indeed they do not seem to be aware of it – so strong is the force of habit.

Credit and debt are abstract ideas, and we could not, if we would, measure them by the standard of any tangible thing. We divide, as it were, infinite credit and debt into arbitrary parts called a dollar or a pound, and long habit makes us think of these measures as something fixed and accurate; whereas, as a matter of fact, they are peculiarly liable to fluctuation.

Now there's only one test to which monetary theories can be subjected, and which they must pass, and that is the test of history. Nothing but history can confirm the accuracy of our reasoning, and if our theory cannot stand the test of history, then there is no truth in it. It is no use to appeal to the evidence of our senses, it is useless to cite laws in support of a theory. A law is not a scientific truth. The law may assert that a certain piece of metal is a standard dollar, but that does not make it so. The law might assert that the sun revolved around the earth, but that would not influence the forces of nature.

Like causes produce like effects, and if governments had been able to create standard coins having a fixed value in terms of the monetary unit, the monetary history of the world must have been different from what it has been. While modern historians deplore the wickedness of medieval monarchs who brought all sorts of evils on their people by their unprincipled debasements of the coinage, the kings themselves, who should have been pretty good judges, attributed their misfortunes to the wickedness of their subjects, impelled by lust of gain to clip and file the coins, and to force the precious metals above their official, or as the royal documents said, their "proper value" – and to clip the coins, and to offer or take the coins at any but their official value were crimes for which severe penalties were enacted.

But even when we have grasped this truth there remain obscurities which in the present state of our knowledge cannot be entirely eliminated.

What is a monetary unit?

What is a dollar?

We do not know. All we do know for certain—and I wish to reiterate and emphasize the fact that on this point the evidence which in these articles I have only been able briefly to indicate, is clear and conclusive—all, 1 say, that we, do know is that the dollar is a measure of the value of all commodities, but is not itself a commodity, nor can it be embodied in any commodity. It is intangible, immaterial, abstract. It is a measure in terms of credit and debt. Under normal circumstances, it appears to have the power of maintaining its accuracy as a measure over long periods. Under other circumstances it loses this power with great rapidity. It is easily depreciated by excessive indebtedness, and once this depreciation has become confirmed, it seems exceedingly difficult and perhaps impossible for it to regain its previous position. The depreciation (or part of it) appears to be permanently acquired; though there is a difference in this respect between depreciation in terms of foreign money and a depreciation of the purchasing price of the credit unit in its own country.

But while the monetary unit may depreciate, it never seems to appreciate. A general rise of prices at times rapid and at times slow is the common feature of all financial history; and while a rapid rise may be followed by a fall, the fall seems to be nothing more than a return to a state of equilibrium. I doubt whether there are any instances of a fall to a price lower than that which prevailed before the rise, and anything approaching a persistent fall in prices, denoting a continuous rise of the value of money, appears to be unknown.

That which maintains the steadiness of the monetary unit (in so far as it is steady) appears, to be what Adam Smith calls the "higgling of the market," the tug of war which is constantly going on between buyers and sellers, the former to pay as little of the precious thing as possible, the latter to acquire as much as possible. Under perfectly normal conditions, that is to say when commerce is carried on without any violent disturbances, from whatever cause, these two forces are probably well-balanced, their strength is equal, and neither can obtain any material advantage over the other. In the quiet seclusion of those peaceful countries which pursue the even tenor of their way uninfluenced by the wars or the material development of more strenuous lands, prices seem to maintain a remarkable regularity for long periods.

The most interesting practical application of the credit theory of money will, I think, be found in the consideration of the relation between the currency system known as the gold standard and the rise of prices. Several economists of the present day feel that such a relation exists, and explain it on the theory of the depreciation of the value of gold owing to the operation of the law of supply and demand, a law, however, which can hardly be regarded as applicable to the case.

We know how it works in ordinary commerce. If the production of a commodity increases at a rate greater than the demand, dealers, finding their stock becoming unduly large, lower the price in order to find a market for the surplus. The lowering of the price is a conscious act.

Not so, however, in the case of gold, the price of which, estimated in money, is invariable; and we must seek another reason. It will, I think, be found in the theory here advanced that the value of a credit on any debtor depends on an equation between the amount of debt immediately payable by the debtor credit and the amount of credits which he has immediately available for the cancellation of his debts.

Whenever we see in a country signs of a continuous fall in the value of the credit unit, we shall, if we look carefully, find that it is due to excessive indebtedness.

We have seen in the Middle Ages how prices rose owing to the failure of consecutive governments throughout Europe, to observe the law of the equation of debts and credits. The value of the money unit fell owing to the constant excess of government indebtedness over the credits that could be squeezed by taxation out of a people impoverished by the ravages of war and the plagues and famines and murrains which afflicted them.

If I am not mistaken, we shall find at the present day a precisely similar result of far different causes. We shall find, partly as a result of our currency systems, nations, governments, bankers, all combining to incur immediate liabilities greatly in excess of the' credits available to meet them.

We imagine that, by maintaining gold at a fixed price, we are keeping up the value of our monetary unit, while, in fact, we are doing just the contrary. The longer we maintain gold at its present price, while the metal continues to be as plentiful as it now is, the more we depreciate our money.

Let me try to make this clear.

In the previous article I explained the nature of a coin or certificate and how they acquired their value by taxation. It is essential to have that explanation clearly in mind if what follows is to be intelligible. To begin with it will be well to amplify that explanation, and to present the problem in a rather different aspect.

We are accustomed to consider the issue of money as a precious blessing, and taxation as a burden which is apt to become well nigh intolerable. But this is the reverse of the truth. It is the issue of money which is the burden and the taxation which is the blessing. Every time a coin or certificate is issued a solemn obligation is laid on the people of the country. A credit on the public treasury is opened, a public debt incurred. It is true that a coin does not purport to convey an obligation, there is no law which imposes an obligation, and the fact is not generally recognized. It is nevertheless the simple truth. A credit, it cannot be too often or too emphatically stated, is a right to "satisfaction." This right depends on no statute, but on common or customary law. It is inherent in the very nature of credit throughout the world. It is credit. The parties can, of course, agree between themselves as to the form which that satisfaction shall take, but there is one form which requires no negotiation or agreement, the right of the holder of the credit (the creditor) to hand back to the issuer of the debt (the debtor) the latter's acknowledgement or obligation, when the former in his turn becomes debtor and the latter creditor, and thus to cancel the two debts and the two credits. A is debtor to B and gives his obligation or acknowledgement of debt. Shortly afterwards, B becomes debtor to A and hands back the acknowledgement. The debt of A to B and of B to A, the credit of B on A and that of A on B are thereby cancelled.

Nothing else but a credit gives this common law right, and consequently every document or instrument, in whatever form or of whatever material, which gives this right of cancelling a debt by returning it to the issuer is a credit document, an acknowledgement of debt, an "instrument of credit."

Now a government coin (and therefore also a government note or certificate which represents a coin) confers this right on the holder, and there is no other essentially necessary right which is attached to it. The holder of a coin or certificate has the absolute right to pay any debt due to the government by tendering that coin or certificate, and it is this right and nothing else which gives them their value. It is immaterial whether or not the right is conveyed by statute, or even whether there may be a statute law defining the nature of a coin or certificate otherwise. Legal definitions cannot alter the fundamental nature of a financial transaction.

It matters not at all what object the government has in view in issuing their tokens, whether its object is to pay for a service rendered or to supply the "medium of exchange." What the government thinks it is doing when it gives coins in exchange for bullion, or what name the law gives to the operation—all this is of no consequence. What is of consequence is the result of what they are doing, and this, as I have said, is that with every coin issued a burden or charge or obligation or debt is laid on the community in favor of certain individuals, and it can only be wiped out by taxation.

Whenever a tax is imposed, each taxpayer becomes responsible for the redemption of a small part of the debt which the government has contracted by its issues of money, whether coins, certificates, notes, drafts on the treasury, or by whatever name this money is called. He has to acquire his portion of the debt from some holder of a coin or certificate or other form of government money, mid present it to the Treasury in liquidation of his legal debt. He has to redeem or cancel that portion of the debt. As a matter of fact most of the government money finds its way to the banks, and we pay our tax by a cheque on our banker, who hands over to the treasury the coins or notes or certificates in exchange for the cheque and debits our account.

This, then—the redemption of government debt by taxation—is the basic law of coinage and of any issue of government "money "in whatever form. It has lain forgotten for centuries, and instead of it we have developed the notion that somehow the metallic character of the coin is the really important thing whereas in fact it has no direct importance. We have grown so accustomed to paying taxes or any other debt with coins, that we have come to consider it as a sort of natural right to do so. We have come to consider coins as "money "par excellence, and the matter of which they are composed as in some mysterious way the embodiment of wealth. The more coins there are in circulation, the more "money" there is, and therefore the richer we are.

The fact, however, is that the more government, money there is in circulation, the poorer we are. Of all the principles which we may learn from the credit theory, none is more important than this, and until we have thoroughly digested it we are not in a position to enact sound currency laws.

One may imagine the critics saying: "There maybe something in what you say. It is rather curious that the government should take gold coins in payment of a debt and should not undertake to accept any other commodity. Perhaps, as you say, the stamping of the coin does give it a special character, perhaps the issue of a coin may be regarded as the creation of an obligation, however contrary the theory may be to what I have hitherto been taught. Still, I cannot altogether see things in your way. In any case, whatever may be the effect of the stamping of a coin, it does not alter its value in any way. When I present you with a sovereign or a $5 piece, I really pay my debt to you, because I am giving you something that is intrinsically worth that amount. You can melt it and sell it again for the same amount, if you wish. What then is the use of making such a point of the obligation which is undertaken by the issue of a coin?"

A similar criticism was made in somewhat different language in a review of my previous article. The author wrote as follows: — "Mr. Innes says that modern governments have conspired to raise the price of gold, but in this he errs. No legislation of the present time fixes the price of gold or attempts to do so. England has enacted that a certain weight and fineness of gold shall be called a pound, the U. S. that a certain weight and fineness shall be called a dollar. But a pound or dollar are mere abstract names and have no connection or relation with value of price.* A like quantity of gold by any other name will have the same value—as, for instance, bullion."

Now let us see on whose side the error lies. If it were true, as my critic says, and as many economists hold, that, all the governments of the world do is to enact that certain weight of gold shall be called a pound or a dollar, it is certain that such a law would produce no effect on the market price of gold. No one would pay any attention to so futile a law. But, as I have already said, the government invests a certain weight of gold when bearing the government stamp with extraordinary power, that of settling debt to the amount of a pound or a dollar. This is a very different thing from merely calling it by a certain name. As history however conclusively proves, even this would not suffice to fix the price of gold in terms of the monetary unit if the government confined itself to buying only so much gold as was required for the purpose of the coinage. But the English government has taken a far more important step than this. It has done what medieval governments never did; it has bound the Bank of England (which is really a government department of a rather peculiar kind) to buy all gold offered to it at the uniform price of £3 17a 9d an ounce, and to sell it again at £3 17s 10 ½ d an ounce. In other words, the bank is bound to give for an ounce of gold a credit on its books for £3 17s 9d, and to give gold for credit, at a small profit of 1 ½ d an ounce. If this is not fixing the price of gold, words have no meaning.

The United States government achieves the same result by a somewhat different method.

The Government of the United States does not profess to buy gold. All it professes to do is to accept it on deposit, make it into bits called standard dollars, stamp them with a guarantee of weight and purity, and hand them back to the owner, or, if he wishes it, he will be given a certificate or certificates in place of the gold. Now I again wish to emphasize the fact that it is not what the government professes to do that matters, but what it actually does. The fact that the law regards this transaction as a deposit does not make it so. The transaction is not really a deposit, but a sale and purchase. In exchange for each ounce of gold the owner receives in money. If the gold we're merely taken on deposit, or for the purpose of stamping it without, giving, to the owner of the stamped metal, any special right to pay his taxes with his gold, that is to say without investing the gold with the character of an obligation, without making it into money, the transaction would be a deposit, but not otherwise; and the fact that the law holds the transaction to be a deposit, merely shows that the legislature acted under the influence of erroneous views on the subject of money. It could hardly have done otherwise, because the whole world had for long been a slave to the most absurd notions on the subject, and indeed England w»s one of the few countries in which the word silver* did not come to mean money. By the seventeenth century the idea that gold and silver were subject to the ordinary laws of purchase and sale had become, if not extinct, at least so beclouded as to be as good as dead. Gold and silver* did not seem to be the object of sale and purchase, being themselves, it was supposed, that for which all commodities were sold. It is only by keeping before our mind's eye a truer view of the nature of money as deduced from known facts that we can realize the real effect to the government's action. Let me give an illustration of the position of a modern government.

When a farmer disposes of his corn to a merchant in return for money, he is said to have sold it. He may have received bank notes, or a cheque or coin or the merchant's bill or note—it matters not which. The transaction is a true sale. Now let us suppose that the farmer took the merchant's note for the value of the corn and that the latter, instead of selling the corn for his profit, declared that it was not his intention to buy the corn, but merely to keep it on deposit for the owner, and that he would keep it till the owner or the holder of a bill presented it to be exchanged for the corn again. This situation of the merchant would be precisely similar to that of the Government to-day with respect to the purchase of gold. The farmer would deposit the money with his banker and would get a credit on the banker in exchange for it. There, so far as the farmer was concerned, the matter would end. The note would eventually find its way to the merchant's banker and would be set off against his credit in the bank books. If he was in a very large way of business, like the government, and great quantities of his notes were on the market, there would be no difficulty in getting the corn in exchange for a note if any one wanted it at the price at which the merchant had received it. If no one wanted it at that price, it would remain on the merchant's hands and he would lose the whole price paid. It does not in the least matter to the farmer what view the merchant takes of the transaction. He has disposed of his corn, and never wants to see it again. He has got for it what he wanted, namely money, and that is all he cares about.

The same is true with reference to the relations between the government and the gold miners or gold dealers. They dispose of their gold to the mint and in return they get money, and that is all they care about. What the government does with the gold, or what view they take of the transaction is immaterial.

Now if we can conceive our merchant acting as the government does, he might, instead of keeping the corn and issuing his notes or bill, sew the corn into sacks of various sizes, print on the sacks the amount of money he had paid for the corn contained in them and then hand them back to the farmer. These sacks would then be money, and if such awkward money could be used they would circulate just as the notes would and just as our coins do. Debtors to the merchant would have the option of handing them back to him intact in payment of their debts or, it they wished to do so, they could use the corn, and the merchant's obligation would then be automatically cancelled by their action. The only difference between the sack of corn and the gold coin is one of convenience, the one being large and unwieldy, the other small and portable.

Now what consideration would influence the holder of the sack of corn in his decision - whether to use the corn or keep the sack intact and pay his debt with it? Obviously he would be influenced by the market value of the corn as compared with the amount of debt which could be paid with the obligation. If the market price of corn were superior to the amount of the debt, it would be at once used as corn. If the market price were equal to the debt, part would be used as corn and part would, perhaps, for a time, be used in payment of debt; but all would before long find its way to the mill. If, however, the amount of the debt, as printed on the sack, were superior to the market value of the corn, then the sack would be kept intact and it would be used for paying debt.

It would thus be easy to see from the number of sacks in circulation whether our merchant was buying corn at or above its market price. If he continued buying, and the sucks in circulation continued to increase, it would be a sure sign that they were worth more as money than they were as corn; and when the time came, as it would inevitably come—be lie never so rich— when he would no longer be able to provide credits for the redemption of the sacks, their value would fall by the amount which he hail paid for the corn in excess of the price at which the market could absorb it for consumption.

This is one of the most important corollaries to the credit theory. A coin will only remain in circulation for any length of time if its nominal value exceeds the intrinsic value of the metal of which it is composed, and this is true not only theoretically but historically. Indeed, it is so self-evident that it might be received as axiomatic, and would be, had we not involved ourselves in a maze of false ideas.

To apply this corollary to a country like America, where little gold circulates and the bulk is held by the Treasury against certificates, it may be stated thus: - Gold cannot be held for any length of time against outstanding certificates, without being redeemed, unless the official price at which it is taken exceeds the market value of the gold. Thus stated, the principle cannot be submitted to the test of history, because the hoarding of gold through government action is of modern growth, and since the practice has been adopted, the price has been ruled by law, and we do not know what the market price is. But once we accept the principle (which can be proved historically beyond any reasonable doubt) that, the monetary unit is not a weight of metal, and that the word "price" applies equally to gold as to any other commodity, it is obvious that gold against which there are outstanding certificates could no more be held, if required by the market, than can corn or pig-iron against which there are outstanding warehouse certificates. The very expression "market price" means the price at which the "market" will absorb the whole available supply; and it is evident that if the market were calling for gold at the current price, the certificates would soon be presented for redemption. There is at present stored in the United Slates Treasury nearly a billion dollars' worth of gold held against outstanding certificates, and the stock is increasing at the rate of about a hundred million dollars a year. It is obvious that if the official price of gold, the "mint price" as it is called, were not higher than its market value as a commodity, such a situation could no more arise than it could with any other commodity. It is just as if the government bought all the eggs in the country at a given price and kept them in cold storage rather than sell them at a lower price. Of course, a certain amount of the gold is withdrawn for consumption, because it cannot be bought for less than the government price, but, if gold were left to be governed by the ordinary laws of commerce, there can be no question but that the price would fall, to the great loss of shareholders in gold mines and the great benefit of the rest of humanity.

Hence I said in my last article that the governments of the world were holding up gold at a prohibitive price.

If we believed in eggs as we now believe in gold, eggs might now be selling at a dollar a piece. They would pour into New York by the shipload from all parts of the globe. Their arrival would be hailed with delight by the financial papers, and the Secretary of the Treasury, in his annual reports, would express his satisfaction at this visible sign of the sound financial condition of the country. Visitors would troop through the icy corridors of the great government vaults where the precious objects were stored, and would gaze with admiration on the prodigious wealth of the Tinted Stales. Custard would be a delicacy for the tables of the rich.

Now let us return for a moment to our eccentric corn merchant, and see whether the peculiarity of his situation can throw any more light on the financial position of the United States. We shall, I think, find that it throws a flood of light on the problem of the rise of prices, a problem so grave that no statesman of to-day can afford to ignore a theory which explains simply and naturally how the phenomenon arises, and indicates the means of arresting its progress.

If our merchant persisted in his singular method of business and paid a higher price for the corn than other merchants were willing to pay, corn would pour into his warehouses, and the market would be flooded with his paper or with sacks of corn bearing his obligation for the amount of the purchase price. However rich he might be, his obligations would soon exceed the amount of his credits; the bankers would refuse to take his paper or his sacks at their nominal value, and they would fall to a discount. [End of page 164] In vain he would protest that his bills and sacks were good, so long as the sacks were of full weight and that his warehouses contained enough corn to cover the bills at the price at which he had bought it. The bankers would reply that the corn was not salable at his price and that he must meet his obligations in credits, not in corn.

If this is true with reference to our merchant, it must also be true with reference to government issues. If the government is really buying gold at an excessive price, and if, in consequence, it is issuing its obligations which are immediately payable in excess of its credits which are immediately available, then, its obligations must be falling in, value. Owing to the immense power of the government, partly through its legislative power and partly through the enormous extent of its commercial and financial transactions, it may be possible more or less to conceal the fact. But the fact must be there, if we can discover it. And the fact is there in the shape of rising prices.

First let us see, whether the government is issuing obligations in excess of its credits.

From what I have said in those two articles follows the important principle that, a government issue of money must be met by a corresponding tax. It is the tax which imparts to the obligation its "value." A dollar of money is a dollar, not because of the material of which is made, but because of the dollar of tax which is imposed to redeem it.

But what do we see? The United States government issues its obligations up to any amount in exchange for gold, without the imposition of any corresponding taxation; and the result is that there is an enormous and constantly increasing floating debt, without any provision whatever being made for its extinction. It is true that all the government paper money is convertible into gold coin; but redemption, of paper issues in gold coin is not redemption, at all, but merely the exchange of one form of obligation, for another of an identical nature. This debt at present amounts to nearly three billion dollars, and, of course increases as more and more gold is brought to the mint and returned to the owners stamped with the government obligation, or deposited in the Treasury against certificates. Of this amount, about one-third is normally in circulation. As regards the coins and notes in circulation, the public stands to the government in precisely the same relation as does the holder of a banknote to the bank. The public are depositors with the government. But as regards the bulk of the coins and certificates, which are not normally in circulation* the public would, if the government were in the same position as a commercial company or a bank, clamor for payment of the debt, and if it were not properly paid, the debtor would be declared a bankrupt. But because we do not realize that the financial needs of a government do not differ from those of a private person, and that we have just as much right to "payment" of a gold coin as we have to " payment " of a banknote, it does not occur to us to make any such demand on the government, and the coins and certificates accumulate with the banks.

Such being the situation, there can, if the Credit Theory is correct, be no question but that the money of the American Government is depreciating. But it will readily occur to those who have read so far that, if this is the case, we should find, in accordance with the principles here laid down, that, there would be to-day the same phenomenon as there was in the middle ages when a similar situation arose: - namely two monetary standards, the higher standard being the undepreciated standard of the banks, and the other, with the same name as the former, being the depreciated standard of the government. We might, in short, expect to find two dollars, a "bank dollar" and a "current dollar," and we would then have, just as in the middle ages, two prices for commodities, the bank price being used by wholesale dealers and the current, price, which would be he standard of the coinage, being used for the retail trade. We should then probably see the difference, between the two gradually increasing, and retail prices rising while wholesale prices in terms of the bank money remaining more or less stationary.

But we see nothing of all this. On the contrary, there is apparently no special depreciation of the government money, but a gradual rise of prices, a rise which, if it implies the depreciation of any money, implies evidently the depreciation of all money, by whomsoever issued; and there is nothing in the credit theory, if considered by itself, which would lead the student to think that a general fall in the value of bank money or merchants' money would follow an excessive indebtedness on the part of the government.

Assuming then, that the rise of prices does indicate a general depreciation of money, an explanation which is accepted by most writers, and assuming that, so far as the government money is concerned, the depreciation is satisfactorily explained by the credit theory; to what are we to attribute the fact that this depreciation is not confined to government money, but is shared by all the money of the country.

It must be at once admitted that much difficulty surrounds this question. The workings of the forces of commerce that control prices have always been obscure, and are not less so than they formerly were - probably, indeed, more so. The great ccombinations which are such powerful factors in the regulation of prices in America, and the great speculative financial interests whose operations affect the produce markets, do not let the public into their secrets, if they have any. Though we may talk vaguely about the rise of the cost of production, increase of homo consumption, tariffs, trusts, etc. the fact seems to be that we have very little accurate knowledge of how a rise of price of any particular article starts, and until we can get exact concrete information covering in minute detail a great number of transactions both large and small, we shall remain a good deal in the dark as regards the forces behind the vise of prices, whatever theory we cling to. Having made these prefatory remarks, I now proceed to give what seem to me cogent reasons for believing that a depreciation of government money, as distinct from bank money, must, under present circumstances, be followed by a general depreciation of all money throughout the country, that is to say, a general rise of prices, and not by a mere rise of prices in terms of government money, prices in terms of bank money remaining stationary.

Throughout history there seems to have been a general tendency for bank money to follow the downward course of government money sooner or later, and the difficulty of drawing a sharp line between the two would necessarily be greater now than formerly, both owing to the fact that the depreciation of government money in our day is more gradual and therefore more insidious than it formerly was, and because the enormous quantity of government money on the market makes it a much more dominant factor in trade than it was in the middle ages. There are at present as I have just said, nearly three billion dollars of government money in the United States, and the addition of a hundred million a year, though a large amount in itself, is less than four per cent, of the whole. Moreover, while the "mutations" in old days took place in a single day, when the coins might be reduced by as much as fifty per cent, in a single edict, the inflation of the government, money at the present time takes place gradually day by day, as the gold is brought to the mint. Thus we do not realize that a depreciation is going on.

Again in old days the financial straits of the governments were well known to the bankers and merchants, who knew too that every issue of tokens would before long be followed by an arbitrary reduction of their value. Under these circumstances no banker in his senses would take them at their full nominal value, and it was easy to draw a sharp distinction between government money and bank money. To-day, however, we are not aware that there is anything wrong with our currency. On the contrary, we have full confidence in it, and believe our system to be the only sound and perfect one, and there is thus no ground for discriminating against government issues. We are not aware that government money is government debt, and so far from our legislators realizing that the issue of additional money is an increase of an already inflated floating debt, Congress, by the new Federal Reserve Act, proposes to issue a large quantity of fresh obligations, in the belief that so long as they are redeemable in gold coin, there is nothing to fear.

But by far the most important factor in the situation is the law which provides that banks shall keep 15 or 20 or 25 per cent, (as the case may be) of their liabilities in government currency. The effect of this law has been to spread the idea that the banks can properly go on lending to any amount, provided that they keep this legal reserve, and thus the more the currency is inflated, the greater become the obligations of the banks. The, importance of this consideration cannot be too earnestly impressed on the public attention. The law which was presumably intended as a limitation of the lending power of the banks has, through ignorance of the principles of sound money, actually become the main cause of over-lending, the prime factor in the rise of prices. Each new inflation of the government debt induces an excess of banking loans four or five times as great as the government debt created. Millions of dollars worth of this redundant currency are daily used in the payment of bank balances; indeed millions of it are used for no other purpose. They lie in the vaults of the New York Clearing House, and the right to them is transferred by certificates. These certificates "font la navette" as the French say. They go to and fro, backwards and forwards from bank to bank, weaving the air.

The payment of clearing house balances in this way could not occur unless the currency,, were redundant: It is not really payment at all, it is a purely fictitious operation, the substitution of a debt due by the government for a debt due by a bank. Payment involves complete cancellation of two debts and two credits, and this cancellation is the only legitimate way of paying clearing house debts.

The existence, therefore, of a redundant currency operates to inflate bank loans in two ways, firstly, by serving as a "basis" of loans and secondly by serving as a means of paying clearing house balances. Over ten million dollars have been paid in one day by one bank by a transfer of government money in payment of an adverse clearing house balance in New York.

Just as the inflation of government money leads to inflation of bank money, so, no doubt, the inflation of bank money leads to excessive indebtedness of private dealers, as between each other. The stream of debt widens more and more as it flows.

That such a situation must bring about a general decline in the value of money, few will be found to deny. But if we are asked to explain exactly how a general excess of debts and credits produces this result, we must admit that we cannot, explain. Or, at least, it must be admitted by the present writer that he cannot explain; though others with more insight into the phenomena of commerce may probably be able to supply his lack of knowledge.

It is easy to see how the price of any particular commodity rises, when the demand exceeds the supply. It is easy to see how the money of any particular country or bank may depreciate, if it is known to be in financial difficulties owing to excessive indebtedness. We can see the machinery at work.

But how are we to see the machinery by which prices are raised, owing to a general excess of debts and credits, where no one recognizes that such an excess exists, when no one realizes that there is any cause for the depreciation of money?

I am inclined to think that the explanation may be found in the disturbance of the equilibrium between buyers and sellers to which 1 have already referred. Money is easier to come by than it would be under ordinary circumstances, and, while the power of the buyer to obtain the highest possible price for his goods is not diminished, the desire of the buyer to pay as little as possible is lessened, his resistance is weakened, he loses in the tug of war. A general spirit of extravagance is engendered, which enables the seller to win as against the buyer. Money really loses its value in the eyes of the buyer. He must have what he wants immediately, whether the price is high or low. On the other hand, the excessive ease with which a capitalist can obtain credit, enables him to hold up commodities speculatively, for a higher price. It puts a power into the hands of the speculator which he would not normally have.

These, however, are mere suggestions on my part and I do not pretend that they supply a completely satisfactory explanation of the mechanism by which prices are raised. Sellers are also buyers, and buyers are also sellers, and it is by no means clear why a man, in his capacity as seller should have more power one way than as a buyer he has in another.

The whole subject, however, of the mechanism of a rise of prices is one which merits a careful study on the part of those who have a more intimate knowledge of the workings of commerce than the present writer can lay claim to.

Before closing this paper, it may be useful to summarize the principal points which it has been the aim of the writer to bring before students of this most interesting1 and little understood branch of political economy.

There is no such thing as a medium of exchange.

A sale and purchase is the exchange of a commodity for a credit.

Credit and credit alone is money.

The monetary unit is an abstract standard for the measurement of credit and debt. It is liable to fluctuation and only remains stable if the law of the equation of credits and debts is observed.

A credit cancels a debt; this is the primitive law of commerce. By sale a credit is acquired, by purchase a debt is created. Purchases, therefore, are paid for by sales.

The object of commerce is the acquisition of credits.

A banker is one who centralises the debts of mankind and cancels them against one another. Banks are the clearing houses of commerce.

A coin is an instrument of credit or token of indebtedness; identical in its nature with a tally or with any other form of money, by whomsoever issued.

The issue of money is not an exclusive privilege of government, but merely one of its functions, as a great buyer of services and commodities. Money in one form or another is, in fact, issued by banks, merchants, etc.

The depreciation of money in the middle ages was not due to the arbitrary debasement of the weight and fineness of the coins. On the contrary, the government of the middle ages struggled against this depreciation which was due to wars, pestilences and famines - in short to excessive indebtedness.

Until modern days, there never was any fixed relationship between the monetary unit and the coinage.

The precious metals are not a standard of value.

The value of credit does not depend on the existence of gold behind it, but on the solvency of the debtor.

Debts due at a certain moment can only be off-set against credits which become available at that moment.

Government money is redeemed by taxation.

The government stamp on a piece of gold changes the character of the gold from that of a mere commodity to that of a token of indebtedness.

The redemption of paper money in gold coin is not redemption at all, but merely the exchange of one form of obligation for another of an identical nature.

The "reserves of lawful money" in the banks have no more importance than any other bank asset.

Laws of legal tender promote panics.

The governments of the world have conspired together to make a corner in gold and hold it up at an excessive price.

The nominal value of the dollar coin exceeds the market value of the gold of which it is made. Coins can only remain in circulation for any length of time if their nominal value exceeds their intrinsic value.

The issue of coins in exchange for gold at a fixed and excessive price, without providing taxes for their redemption, causes an inflation of government money, and thus causes an excessive floating debt and a depreciation of government money.

Large reserves of "lawful money'' in the banks are evidence of an inflation of the government currency.

The inflation of government money induces a still greater inflation of credit throughout the country, and a consequent general depreciation of money.

The depreciation of money is the cause of rising prices.

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Readers are warned that it is essential to bear constantly in mind the definition of credit, as laid down in the first article. Those who are not accustomed to this literal use of the word "credit," may find it easier to substitute in their minds the word "debt." Both words have the same meaning, the one or other being used, according as the situation is being discussed from the point of view of the creditor or the debtor. That which is a credit from the point of view of the creditor is a debt from the point of view of the debtor.
Modern governments unfortunately do not limit their issues of money to the payment of purchases. But of this later on.
I do not wish to be understood as saying that the retail trade followed the standard of the coins, except to the extent that they shared the fate of the king's livre. Owing to the abuse of the system of "mutations" and the attempted monetary reforms, it is probable that the coins often suffered not only the depreciation of the king's livre, but had their own independent fluctuations.
Like the livre in France, the mark was both a measure of weight and a monetary unit. But while the livre was never used for the weighing of the precious metals, the mark was the unit of weight for these metals, and this has caused German historians to confuse the two. How the same word came in many counties, though not in all, to be used for two such different purposes, we do not know. Possibly it originally only signified a unit of any kind. Another instance of the use of the same word for the two different kinds of measurement is the word "inch," a measure of length, and the word "ounce" a measure of weight. Both these words are etymologically the same.
U.B.: Should probably read: Chicago
Goshen's "Theory of Foreign Exchanges" must be included among scientific treatises on credit. Hartley Withers's recent works, "The Meaning of Money" and "Money Changing" are practical rather than scientific treatises. They are indispensable to the student.
Even when the coins that once were silver were most debased, they were still regarded as silver in theory, though not in practice.
The views on the subject of gold were, however, rather mixed.
Owing to the government policy of monopolizing the issue of money in small denominations, the amount in circulation increases largely at certain seasons of the year.

DEMOCRACY DEFEATED

2015-04-03T02:30:00.000+03:00

This ability of governments to inject counterfeit issues into the circulation is the basis of their power to deliver wealth to pressure groups at the expense of the rest of the community. This insidious taxation underlies the whole trend toward the confiscation of wealth and the governmentalization of personal enterprise.

It robs Peter, all unknown to him, to subsidize Paul, who is gratefully conscious of government largess. There comes now socialists, communists, fascists and sundry other schemers to confuse Peter who, regardless of which ism he chooses as a remedy is sure to blame business for his ills. Since government always poses before the people as their protector, obviously the thing to do is to give it more power to guard the public against "chislers," "profiteers," "black marketeers," and other wolves of business.

Thus business prestige declines as political propaganda deflects upon it the blame that should fall upon government. There is no war of ideologies.

There is but an epidemic of pressure-group larcenies perpetrated against the bewildered public by means of counterfeit money. The beneficiaries of these raids would fear to issue counterfeit by their own hands, but when government does it for them, they readily join pressure groups to tap the seemingly inexhaustible fountain. Collectivist propaganda is but a collateral force in promoting seizures and controls.

The influence that brings it about is the enticement offered by government of getting something for nothing. As citizens are too weak to resist this enticement, so politicians are too weak not to offer it, for to refuse "benefits" is to risk loss of office.

The corrupting power of government largess cannot be allowed to continue if the social order is to avert complete demoralization. To obscure the logical consequence of injecting into the money stream billions of counterfeit units, governments resort to suppressive price controls. With the operation of the law of supply and demand, which is cardinal to free exchange, thus impeded, industry becomes atrophied, thereby developing a public demand for government operation.

The sin of counterfeiting leads government to one vice after another in an effort to escape the consequences of the original sin. It is this fleeing from the consequences of past errors, rather than consciously pursuing a goal, that is bringing dictatorship upon us. Government is being transformed by escapism into a tyranny of expediency. This explains the seeming paradox of the constant trend toward dictatorship in the face of official declarations espousing liberty. The first act of the ambitious politician is to grasp the "money" issuing power of government. By this means he literally buys his way to his objectives. Its value to him lies in the fact that through it he can escape public resistance to taxation. To balance the budget requires that the cost of each project be immediately revealed to the electorate through obvious taxation.

By counterfeiting money, he not only escapes the sales resistance to his projects, but he even creates the illusion of prosperity by the temporary stimulus given to business by spending. Of course, an unbalanced budget means merely deferred taxation, through inflated prices, but it can be deferred until the objective is attained, and, even then, blame can be escaped by crying "stop thief" at private business. Examine the methods of any and every dictator or would-be dictator or blundering escapist, and we find that his essential tool is money counterfeiting. All else is propaganda and stage property.

Without this tool, government would be compelled to be honest and frugal, because every citizen resists taxation if it does not fool him. Without the money-counterfeiting tool of government, there could be no war except by popular mandate, because the price would have to be consciously and immediately paid. The would-be war maker first of all conquers and subdues his own people by the narcotic of counterfeit money.

If the people would hold the veto power of war, they must deny to their government the power to counterfeit money. Nor does communism necessarily come upon a people through a political coup or revolution. Its most insidious and dangerous process is evolutionary by means of counterfeit money, in spite of lip service sincerely rendered by politicians and reassuringly accepted by the people. To issue counterfeit dollars into the money stream is to reduce the power of all other dollars, and thus the frugal elements of the community are continuously drained and the communistic aim of leveling wealth is accomplished. As this process of robbing the productive proceeds, it destroys the incentive to production and thus sabotages personal enterprise.

The resultant impoverization and demoralization is not attributed by the public to the government issue of mock money. The blame falls upon the personal enterprise system. Thus the public mind becomes conditioned to turn from personal enterprise and to look to government for salvation, and this produces the popular support for the assumption by government of the means of production and distribution.

Under the confusing and confounding term inflation, which is caused by government counterfeit in the money circulation, communization is actually proceeding and being blindly supported by personal enterprisers who think they are operating under a free economy. Under the mock money process, our so-called free economy is but a transmission belt to communism. Monetary power is man's sovereign power.

He must exert it and protect it if he would govern government and commerce and gain mastery of life. Without such mastery, we cannot have democracy, we cannot have prosperity, we cannot have peace.

WHAT IS FREEDOM?

2015-04-03T01:30:00.000+03:00

Freedoms may be numbered from four to forty, but these are but branches of the trunk freedom which is unrestricted exchange. Freedom, on the civilized plane, began with exchange and has expanded as exchange has expanded.

We are free in the degree that we are able to enjoy social intercourse. This enjoyment is measured by our mental and material wealth, which in turn depends upon our productivity, and this depends upon our exchange facility, since we produce for ourselves only indirectly through exchanges with our fellows. Thus exchange is the neck of the bottle of freedom and enjoyments.

So-called political freedom is negative in that its maximum is attained by the least intervention in our affairs which leaves us free to enlarge our freedom by our cooperative efforts with our fellows.

This ideal state has never been attained, as the state has always impeded exchange and thus impeded freedom. Constitutional guarantees, in so far as they are effective, are merely restraints upon the state's powers of invasion of human rights. They bring no freedom. They merely undertake to curb the state and leave unimpeded our pursuit of freedom.

There are no political methods for gaining freedom. To gain freedom, we must invent methods of maximizing our productivity and minimizing our labor expenditure therefore. But it is useless to strive for this, except in so far as we develop our exchange capacity, since it is through the reciprocal action of exchange that production is digested. Our ability to invent methods of labor saving and increasing production has thus far outrun our ability to facilitate exchange.

This deficiency stands astride our path of progress. All the impediments to exchange spring from the state, for which man in his ignorance of natural laws is to blame. The state's perverseness does not arise from the design of statesmen, but from its receptivity to the schemes of pressure groups and the lack in the minds of its constituency of a true concept of the bounds of proper state activities.

There is a deep superstition in the citizens' minds that projects the state as the supreme instrument of progress and prosperity, and thus man gives moral support to plans and schemes that subvert both the state and the economy.

This belief in the efficacy of political intervention in the personal enterprise system, with resultant increasing political perversion and restriction of freedom, is a force running counter to the liberating power of mechanical inventiveness seeking to reduce the labor price of production and enlarge freedom.

The former has greatly retarded the latter, and, if the trend continues, will gain the ascendancy and reverse the social movement into devolution.

The danger of this is very real, because as increasing intervention by the state causes greater distortion of personal enterprise, blame falls, not upon the true cause, but upon the seeming malfunctioning of business, the remedy for which is wrongly thought to be greater and greater political control, until dictatorship results. From this false diagnosis of economic maladies spring the so-called ideologies of socialism, communism, fascism, and so forth. No one ever ideologizes personal enterprise; it has no ideology .It is not a way of life; it is the way of life. It is unplanned and springs from the natural impulses of man.

It is not even necessary that it be understood, because man naturally and instinctively engages in it. But it is necessary to understand what is inimical to it. That which is inimical to it is inimical to freedom. Consider whatever intercourse you may desire with your fellow man, and you will find that it is facilitated or retarded by the extent to which you and he have enjoyed freedom of exchange, even though there be no material exchange in the particular intercourse you visualize. Life is constituted in freedom of intercourse and mutual agreement, and exchange is the touchstone of mutual agreement because it implies satisfaction to both parties.

Anything that impedes free exchange is a force against harmony and mutuality and an antisocial influence. All political laws controlling exchange limit man's right of untrammeled choice and strike at the very base of his freedom.

The Essential Capitalism

2015-04-03T00:30:00.000+03:00

IN COMMON UNDERSTANDING, the capitalist system means the profit system. To bring sense into the discussion, we must clarify the concept of profit by distinguishing between profit and paper profit. A paper profit is a dream or forecast of power to enjoy wealth. Actual enjoyment or use of wealth is the only realized profit. "Production for use" is but another way of saying production for profit. The profit system is therefore the use system, with which no one can quarrel. Capitalism is the system of guaranteeing use or profit by private ownership, and since there is no other way of gaining such security, there is no fault to be found with the capitalist system when clearly understood. The desire for use or profit is natural, ownership as a means of assuring it is natural, and free money as a means of conveying and acquiring ownership makes the third of a natural and wholesome trinity. The effect of the valun upon the capitalist system will be to permit capitalism to be its natural self and to become known for what it really is, namely, the cultural developer of man through its facilitating the first and grandest law of nature, the law of selfishness. The most cooperative, the most social and the most elevating principle of life is selfishness, and capitalism is its handmaid. The impulse of acquisition, which is the driving force in enrichment, brings discontent through disappointment, but never through realization. Capitalism is never criticized when it works. Only its miscarriages bring grief and bitterness. These disappointments have developed the queer logic of collectivism, which argues that since capitalism has not worked fairly for all, it should not work for any. The collectivists also overlook the fact that capitalism has not worked fairly because of the interference of collectivism. The sufferer from the biased operation of capitalism is the victim of collectivism without knowing it. The political money pretense and all political intervention in personal enterprise are collectivist schemes. True capitalism seeks and permits no political interference; its task is the organization of society on a purely economic basis with complete liberty of action therein assured to every individual. Capitalism is life itself. There is no starting point in evolution beyond the impulse to live——the law of self preservation——and right there capitalism starts. Self preservation implies self advancement, and thus all life follows a consistent capitalistic line that is unalterable. Despite the handicaps of collectivism, therefore, capitalism functions because there is no other system that will function at all. The capitalist system has been pushing the world along for several billions of years. He who would abolish it must start a new universe on a new principle.

What is Money?

2015-04-03T00:25:00.000+03:00

CIVILIZATION began with exchange, and exchange began with barter. Barter means the exchange of things for things, with each transaction complete in itself, leaving no claim or obligation by either trader. Obviously, such transactions require contact of two traders, each of whom has something the other wants. Such contacts are not easy to make, and an escape from this limited exchange method had to be found to permit man to raise his standard of living beyond that of bare necessities.

The first device resorted to was to adopt, for a criterion of value, some commodity that was in common use. A list of the commodities adopted in this way at various times and places would include salt, hides, grains, cattle, tobacco, metals, and so forth. The trader accepting these found them useful not only to himself, but on account of their general acceptance, he was assured that he could use them to secure desired commodities in exchange. This was the first step in the process of liberating exchange, a process that would culminate with money. A refinement in this important first step came about with the adoption of precious metals such as gold and silver as intermediating commodities.

This manifested a greater emphasis upon usefulness for exchange rather than for consumption, and marked the final phase of whole barter, or value-for-value exchange, before the dawn of money. Because of the use of precious metals as the last and highest phase of whole barter exchange, the next step in the direction and harbinger of money was the introduction of a promise to deliver these metals. The belief persists to this day that money, to be sound, must promise the delivery of gold or silver. The essential quality of money, however, is its promise to deliver value in any commodity at the choice of the holder. But in spite of the specification of a given commodity stipulated in the promise, the promise came closer to being money than anything previous because it involved a time interval between the first transaction and the final completion of the exchange, when value has been received on both sides. It introduced also the element of faith. The need for money has always been far in advance of the implements available for utilizing it.

Because the need was and always is so urgent, the trader has accepted anything that has offered the prospect of effecting non-direct barter exchange. In doing so, he has exposed himself to the devices of the charlatan as well as the sincere reformer. He has had no rationale to guide him. The only logic he has been able to employ has been to choose the better media when two or more have been available. Why has man consistently endeavored to escape simple barter when, because of its very simplicity, it has offered security against deception while monetary systems have invariably betrayed him? Why must man have money? It is neither a tool of production nor a product. It is neither food, raiment, housing nor adornment. It has no value, yet it is indispensable to modern man. Why indispensable? Because man's wealth producing potentialities through specialization of labor cannot be exploited unless the exchange of goods and services can be split in two parts, with one trader receiving value and the other receiving only the prospect of value.

Therefore what man has been striving for is the opportunity to acquire without coincidentally surrendering value. If he must complete the exchange in one transaction, he s reduced to simple barter, and simple barter requires him to find someone who has what he wants and wants what he has. To do this requires so much time and effort that he loses what he might otherwise gain from the specialization of labor. Visualize two persons facing each other, one holding a value that the other desires, and the other holding nothing of value. How can they do business? Obviously the emptyhanded, would-be trader must have some means of inducing the possessing trader to transfer the desired value. If he asks what the possessor would like in exchange and promises to deliver this desired commodity at a later time, and if this promise is accepted and the possessor surrenders his value, the promisor has established credit. But the transaction is not a monetary transaction, even though the promisee accepts a written evidence of the promise. Here, then, we should pause to comprehend that money and credit are not synonymous.

The promisor has not gained the freedom of money, because he must now seek and find and deliver the specific commodity pledged. The barter transaction has been only partly split, by the introduction of the time interval. To invoke the facility of monetary exchange, the would-be trader must deliver requisitionary power upon some unidentified trader or traders who can and will surrender an equivalent value at the holder's option. The utilization of money as the medium of exchange does not mean departure from barter. It is but a method of splitting barter completely in two halves. The acceptor of money gives value therefore but receives only a promise of value, which, when conveyed to a subsequent seller, requisitions his half of the split-barter transaction. Introducing a time element into barter and giving the acceptor the power to requisition his half from any trader and in any commodity, at any time, is what expedites and multiplies exchange, thus releasing more and greater variety of production and hence raising living standards. While money is the liberator of exchange, it is also the vehicle of human trust and confidence. Its substance is the pledge that he who takes will also give. This pledge of faith is the basis of the power to issue money.

In simple terms, it means that he who would issue money to cover his purchases must be prepared to redeem his pledge by selling. In other words, persons who enter a monetary exchange agree to give and take things in trade, at the market price, on the tender of the monetary instrument from any quarter. Thus every trader relies upon the pledge of the issuer that he will honor his issue on demand. A society accustomed to trade on the basis of its faith in its money is vulnerable to deception as it never was on the whole barter system. It is imperative, therefore, that man master money, so that he can assure the fidelity of the promise implicit in what he accepts as money, and can not only exclude from the issue power all unworthy of it, but can admit to it all of those who are worthy of it——including those now excluded under the existing political monetary system. If money is to fulfill its function as the liberator of exchange, it must be protected from pollution by false issuers, and it must also be free to draw its supply from all worthy sources. The broader its base, the higher can be its apex and the greater its service to mankind.

To improve our money system it is neither necessary nor wise to destroy our present system

2015-04-02T21:30:00.000+03:00

How Money Works: Changing to a New Monetary System

2015-04-02T19:30:00.000+03:00

Through my “how money works” posts last week (one and two) we discussed some of the problems of our current monetary system and some of my ideas of how the system could be changed to create a debt-free system in which the economy can flourish, there is no unlimited inflation (the system is not inflationary in nature) and the ability to exchange is organically adjusted to society’s exchange needs. However the most important problem of this idea is actually a very simple question: how do you replace the current monetary system? On today’s post I am going to talk about this matter and how I believe the current monetary system could be replaced in a very natural way.

When you think about changing our monetary system one thing comes to mind: money and power. The current system works wonders for a very small minority – who are very powerful- and therefore have no intentions whatsoever to change the status quo and will in fact defend it to the last consequences. Democratic reform is also an irrational expectation since the government is funded and lobbied by those who are interested in keeping the system running. Revolution is also a very unwanted course of change since it demands social fallout, reconstruction and a lengthy process which society most likely will not be willing to endure unless the current situation becomes unbearable.

How do we change the monetary system then? The answer is that to change the system we need to work from within it, we need to work from the system’s insides and make our solution a more desireable mechanism than the current one. Money – as I said on the first post on this series- is nothing but an agreement so we, as a society need to agree to enforce another monetary system. How is done in practice? We need to come up with a way to implement this monetary system in a way which is parallel and complimentary to the current one with the current system being replaced gradually as larger segments of society move to a new implementation. The only realistic way in which a new monetary system will be implanted is if the population moves organically to it as it coexists with the current one.

The main challenge of this is to create a system which can coexist with the currency system and eventually replace it. The system I proposed on the second post of this series has the potential to do this and how successfully it is done will have a definitive impact on how successful the new system can be. The proposed system could start from structures analogous to banks (let us call them exchanges) where people get the ability to start using the credit/debit system. A minimum number of people would need to be the “seeders” of the system in order to allow a healthy start of exchanges within the new monetary system. Such a system is completely legal as it does not create any type of money – as defined by government- but merely acts as a vehicle for exchanges. Since all debit/credit transactions net zero the exchange corporation is not doing anything but helping people exchange goods. An efficient group of seeders also doesn’t need to be that large and small communities are ideal to implement the first exchange corporations (with small sub-communities in cities being the next step).

Another interesting question is the interaction with regular currency. Obviously if this system is bound to replace the old one gradually it needs to have some form of interaction with the current monetary system (it needs to coexist). Supposing zero interaction would be unrealistic. How does current currency interact with the debit/credit system? As any other thing would interact. When someone wants to exchange regular currency within the system a person who gets the currency receives a certain debit while the person who gave the currency receives credit. The credit/debit exchange rate changes as the perceived value of the “regular money” commodity changes as it does for any other different commodity. The net sum of all credit and debits is always zero and this “regular money” is just treated as everything else. Note that in this system regular money can become completely worthless while credit/debit has an intrinsic value given by the needs of exchange which has no potential for inflation (remember that net sum is always zero).

In this scheme of things an exchange corporation is created which interacts with community A. In the community everyone starts with zero and a fixed debit potential which can then be adjusted to their “exchange history”. In the community businesses and people agree to accept the exchange methodology provided by the corporation and they start to carry out their business. People work to get credit, spend this credit on businesses which do the same, etc. Some people need to get regular money from their credit and they exchange credit for regular money with those members willing to carry out the exchange. Regular money circulates as any other good within the credit/debit exchange system. Some people want to save and exchange their credit for real stores of value (like metals) while others just use it to carry out business (as highlighted above).

Another interesting point is how the corporation “pays” for its functioning (workers, etc). It does so here through a fee structure, it debits all users a small amount and credits it to its workers and contractors. Now the interesting thing here is to remember that the credit/debit balance is always zero so the workers and contractors spend this credit within the community meaning that it quickly returns to users within the community. The corporation is therefore an “engine” for the economy, it is not like a regular bank (which hordes interests) but it – by mere consequence of the system’s characteristics – recirculates all its functioning expenses back into the community.

My idea is that within this exchange community you would soon have a very well functioning structure in which there is money creation/destruction as a mere consequence of how exchanges need to be carried out. The exchange corporation acts as both an exchange control central and as an “economic engine” as it forces spending/earning through its mere functioning. The first key to the development of my money management system is therefore to start within small communities in ways which are organic to the current monetary system. As things grow more and more people get into this and eventually there is a background structure to the real monetary system which replaces it by mere nature. A natural process which is independent of political will and revolution.

Of course the above descriptions are not without problems and it will certainly take me a book (or a few books!) to go through all the methodology, practical implementation and solutions to problems that may arise from all the above mentioned intentions. However it is clear to me that organic integration is the only realistic way to replace the current monetary system, it will never be done through the willingness of the bankers or politicians.

Now tomorrow I will go through another very interesting topic many of you have asked about which is how to replace the current notion of “credit”. How can someone acquire an expensive good like a house? how can you replace “loan structure” ? You will see that the current system offers very organic solutions to this problem that do not hinder the creation or business or the achievement of people’s goals (own a house, car, etc). If you would like to learn more about my work in trading and how you too can build your own systems and strategies to trade the markets please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach towards automated trading in general . I hope you enjoyed this article ! :o)

Buddhist Economics

2015-04-02T16:00:00.000+03:00

(From an article by the economist E.F.Schumacher in Resurgence magazine, 1968)

"The Buddhist point of view takes the function of work to be at least threefold: to give a man a chance to utilize and develop his faculties; to enable him to overcome his ego-centeredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence. Again, the consequences that flow from this view are endless. To organize work in such a manner that it becomes meaningless, boring, stultifying, or nerveracking for the worker would be little short of criminal; it would indicate a greater concern with goods than with people, an evil lack of compassion and a soul-destroying degree of attachment to the most primitive side of this worldly existence. Equally, to strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely, that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.

From the Buddhist point of view, there are therefore two types of mechanization which must be clearly distinguished: one that enhances a man's skill and power and one that turns the work of man over to a mechanical slave. How to tell one from the other? "The craftsman himself", says Ananda Coomaraswamy, a man equally competent to talk about the Modern West as the Ancient East, "the craftsman himself can always, if allowed to, draw the delicate distinction between the machine and the tool. The carpet loom is a tool, a contrivance for holding warp threads at a stretch for the pile to be woven round them by the craftsman's fingers; but the power loom is a machine, and its significance as a destroyer of culture lies in the fact that it does the essentially human part of the work". It is clear, therefore, that Buddhist economics must be very different from the economics of modern materialism, since the Buddhist sees the essence of civilization not in the multiplication of wants but in the purification of human character. Character, at the same time, is formed primarily by a man's work. And work, properly conducted in conditions of human dignity and freedom, blesses those who do it and equally their products. The Indian philospher and economist J.C.Kumarappa sums up the matter as follows:

"If the nature of the work is properly appreciated and applied, it will stand in the same relation to the higher faculties as food is to the physical body. It nourishes and enlivens the higher man and urges him to produce the best he is capable of. It directs his freewill along the proper course and disciplines the animal in him into progressive channels. It furnishes an excellent background for man to display his scale of values and develop his personality."

New Monetary Systems for a Sustainable Democracy and "The Great Turning"

2015-04-02T01:32:00.003+03:00

Our money system is ill-equipped to help us solve the pervasive socio-economic and ecological challenges we face. Transformation of our money system is critical because monetary diversity is just as important to human survival as biodiversity is to the fate of the earth.

There is a lot that we can learn from nature, and one important lesson is that diverse systems have greater strength and resilience. When conditions change, various components within a diverse system will step in to pick up where others fail. The weaknesses of monocultures are evident in agricultural systems where crops either flourish or wither each season. We also know that using permaculture, in which multiple types of plants are grown together to fill different functions and aid each other, creates greater abundance.

Less obvious is that these same principles can be applied to monetary systems. The dominant type of money, a fiat currency, essentially a mono-currency based on debt and scarcity, is failing most of us. Inherently, it encourages competition and hoarding, traits that mean some will win, and some will be left out. It is also required to perform functions that are at odds with each other: to both circulate in the economy and to be accumulated for future use. And it requires constant growth to survive, a trait that becomes more maladaptive as we bump into the limits of a finite planet.

Alternatively, new types of money are being developed to complement the dominant currency. Over the past 40 years, the number of complementary currencies has grown from two to many thousands. Time is proving that these new currencies can be designed to fulfill vital functions that the dominant currency cannot and that they actually strengthen the overall monetary system. This is leading to a whole new way of thinking about money.

Money is an agreement between people about how to structure exchanges. It can be used to connect unmet needs with unused resources, however a community decides to define those terms. And money can be designed to shape behavior in ways that are positive for individuals and for society, that encourage cooperation, trust, protecting the environment and sharing prosperity.

The transition to a more diverse monetary system is happening largely outside of governments and large financial institutions. People within communities are working together to solve problems and meet their basic needs. It is possible to create what Jacqui Dunne, coauthor with Bernard Lietaer of Rethinking Money: How New Currencies Turn Scarcity Into Prosperity, calls "sustainable abundance."

And as long as complementary currencies are designed in ways that are transparent, hyper-democratic and restorative, they will avoid the negative forces of the current system that defaults to increased wealth inequality and isolation of individuals. We are in the early phase of a transition, from the industrial age to the information age, from growth at any cost to sustainability and from competition to cooperation. Conditions are ripe to create the kind of world in which we want to live and to fund it using a diverse monetary system.

Debt-based Currency Creates Scarcity, Competition

To understand money more fully, we must first address how money is created and how the design of monetary systems shapes human behavior.

The dominant currencies worldwide are fiat-currencies, meaning that they are created from nothing tangible. Rather than being based on gold or other substances, they are guaranteed by the reputation of a government. This is important to note, because there is nothing magical about money. You don't need special power or wealth to create it. Money is a medium of exchange, and any community, no matter how small or how large, can design their own way to handle exchanges among themselves.

Another important concept to understand is that dominant currencies are based on debt. In the United States, the Federal Reserve, which is organized like a private corporation, creates money that is lent to private banks, which then create more money by issuing loans for amounts of up to 10 times the amount that the bank has in holdings and charging interest on those loans.

The US government also obtains money by incurring debt. Even though the Constitution gives it the power to create money, it has ceded that power to the Federal Reserve. Of course, the US Treasury prints money and produces coins, but to have access to that money, the government must issue bonds, which are bought by banks or investors with an expectation of more money in return.

Money that is based on debt inherently creates scarcity and competition. To put it in simple terms, all money that is borrowed must be paid back with added interest. The more that is loaned, the more that must be repaid. That extra money, the interest, goes to the bank rather than being spent in the community. In other words, interest consumes money and removes it from circulation within the community, thereby creating scarcity. It also drives the need for an economy to continually grow.

Interest also creates competition, as people vie for the dollars within the community to be able to pay off their interest. Some will succeed and some will lose. And some may spiral deeper and deeper into debt, ending in financial ruin. This is the reason that debt-based money goes hand-in-hand with bankruptcy.

The current system also encourages hoarding and isolation. Most of us depend on money to meet our basic needs for food, shelter, health care and so on. We fear that without money, we may one day end up on the street, hungry and in need. There is no sense of safety net or that our community will be there to take care of us. This drives the feeling that we must hang onto our money and protect it from others who might try to take it from us. It erodes our trust in each other. Dunne describes trust as an important aspect of social capital that is being eroded by the current system.

Complementary Currencies Balance Weaknesses

Lietaer and Dunne point out in Rethinking Money that the current monetary system is very fragile. In the past four decades, there have been "no fewer than 145 banking crises, 208 monetary crashes and 72 sovereign debt crises. This adds up to an astounding total of 425 systemic crises - an average of more than 10 countries in crises each and every year!"

But it doesn't have to be this way. It is especially during these times of crisis that complementary currencies are the most beneficial and can balance out the weaknesses of the dominant currency. This has been most clearly demonstrated bythe Swiss WIR, which is nearing its 80th anniversary.

During the financial crisis of the 1930s, a group of 17 businessmen figured out a way to continue to operate their businesses even though they had all received notices from the banks that their credit was either reduced or cut off completely. They realized that their debts were to each other for goods and services. So they created a mutual credit system to keep track of what they owed each other and strove to keep their credits and debits relatively equal.

The resultant WIR system is flourishing today. In 2010, it reported that 16 percent of Swiss businesses were trading in WIR at a volume of $1.6 billion each year. Moreover, the WIR is a major reason that the Swiss economy is so stable. It turns out that WIR currency is countercyclical. When there is a recession, trading in WIR increases, and it decreases when francs are available again. WIR is also highly-leveraged, meaning that trading in WIR increases the circulation of francs in the economy. This happens because not all transactions are strictly in WIR, some are part WIR and part francs.

Dunne reports that the WIR system is being piloted in Burlington, Vermont, by theVermont Businesses for Social Responsibility program. The WIR system is a mutual credit system that is only used by businesses, but there are other types of complementary currencies as well. Another one that has been very successful is theBanco Palmas, which started in a very poor community in Brazil.

The people of Conjunto Palmeira realized that money was being drained from their communities because 80 percent of what they earned was spent elsewhere. They created a currency called "Fomentos," which could only be spent locally. Additionally, they created a lending system without interest that provided small loans to help people meet their basic needs during tough times and larger loans to help businesses. Initially, loans were made in Fomentos so the money had to be spent locally. Eligibility for the loan was determined by one's social capital or trustworthiness.

Research has found that the Fomento creates a multiplier effect because use of the local currency avoids excessive leaking of purchasing power to the nonlocal economy. Local currency circulates more quickly and for longer periods, changing more hands in the local economy than its national equivalent. Further, as this reportdescribes, "the Fomento method seeks to generate a dynamic of development within the community: support for local production, lower costs for local producers, more employment, increased sense of community. This dynamic of development will last beyond the program's duration in a self-reinforcing 'virtuous circle.' "

Over time, because of the success of Banco Palmas currency in creating jobs and reducing poverty, the Brazilian government and the largest bank in Brazil partnered with the Instituto Palmas. The Palmas currency is now present in 66 communities around Brazil.

Complementary Currencies Shape Human Behavior

There are many types of complementary currencies. Some are very specific to a community, such as the Banco Palmas, or the BNotes used in Baltimore, and some are used in large areas such as the WIR in Switzerland or the Regio in Germany. The Baltimore BNotes are exchanged for federal dollars, but other types of currencies are based on time. And still others are earned through certain behaviors.

A well-known complementary currency that shapes behavior is the frequent flyer program. It was designed to develop customer loyalty to a particular airline and was initially only exchanged for plane tickets. Now, many frequent flyer programs have expanded so that earned points can be exchanged for car rentals, hotel stays and goods.

Another successful currency that began out of a desire to change behavior took place in Curitiba, Brazil. In the poor neighborhoods, the roadways were too small for trash trucks to get through, and the trash was piling up. The mayor recognized that the city's buses had a lot of empty seats. He solved both problems by announcing that a bag of trash brought onto a bus could be exchanged for a bus token. Within two weeks, the trash-filled neighborhoods were cleaned up.

The story of Curitiba doesn't end there. Farmers began accepting the bus tokens in exchange for produce. And fishermen started trawling for trash on the days they were not fishing. The standard of living in the city rose so that it became one-third higher than the standard of living for the entire country. And Curitiba was designated the most ecologically advanced city in the world.

A key ingredient for the design of a successful complementary currency is to connect an unused resource, seats on the bus, with an unmet need, trash removal, using a form of currency, the bus token. In every community there are unmet needs that can be met by unused resources. There are many possibilities. It is up to communities to decide what the ingredients are for their complementary currency system.

Other key ingredients for success are to make sure that the system is transparent and that it has a good governance system that is hyper-democratic and can handle difficulties as they inevitably arise. The new currency system should also be created in a way that reflects the values of the community and builds the type of future that the community wants to see.

It is important to think about the desired outcomes for a complementary currency because there are ways to design the system that encourage specific behaviors. One concept that is used when the goal is to keep the money circulating within and stimulating the local economy rather than being hoarded is the demurrage or negative interest. In this type of system, the currency loses value over time.

For example, if a currency has to be used within a certain time period, like a gift certificate that expires, as the expiration date approaches, a person will feel an incentive to use it. Dunne describes this as thinking about money that rusts if not used.

Complementary currencies create cultural change. The use of local currencies teaches that spending in and investing in one's community makes the local economy stronger. It also teaches cooperation, mutual assistance and fosters personal relationships and trust within a community. And it strengthens democracy if it is structured in a way that allows people to participate in and have a voice in the system.

Many currencies are local or specific to a community, but there are other options. The infrastructure is being created using cellphones so that trade can occur globally without being locked into one system like PayPal and without using a conventional banking system.

The Time is Ripe for a Diverse Monetary System

The conditions for real systemic change are here: crises, cultural shift and information.

There are real economic crises and hardships that are motivating people to search for alternative ways to meet their needs. Another massive economic crash is looming as big banks engage in high-risk derivative trading at high volumes and expect to be able to bail themselves out by seizing deposits, as happened in Cyprus.

And the financial crisis is converging with an ecological crisis. Unlimited growth is just not possible, and people are more motivated to change their behavior and create systems that are less harmful to the planet and more sustainable.

This is part of the cultural shift that is occurring. Also, as our government and large institutions operate more secretly and independently from a democratic process, the public is beginning to realize the damage that this causes. There are greater demands for open communication, transparency, sharing and participatory democracy.

And finally, we are transforming away from the industrial age to an information age that Dunne describes as an "age of wisdom." Information is readily available through the internet and can be shared easily and quickly with others around the globe. This transformation is also affecting the types of work that are available: less manufacturing and more technology.

We are in a time that some call "The Great Turning." It is a time for broad systemic changes. And it is possible to make these changes in ways that create sustainable abundance for all. We can learn from the weaknesses of the current systems so that our new systems do not default at a later date to the situation we are in now.

Some of the weaknesses of the current monetary system are being resolved by applying principles used in permaculture. On a side note, the transition townmovement arose by applying permaculture principles to the design of societies.

In "Currency Solutions for a Wiser World," Bernard Lietaer asks, "Have you ever wondered why cash shortage so bottlenecks our best efforts and initiatives when we actually live in a world where there is neither a shortage of things needing to get done, nor a shortage of people wanting to do them?" Note the combination in his question of unmet needs and unused resources that Dunne also highlights. Then, he provides the answer, focusing in on the system of currency:

"The answer to this question has to do with the monopoly of the kind of money system we use, which is the source of the scarcity which so many people experience and the root cause of a great number of our problems. Our money system was designed a long time ago and is now out of date. It is particularly ill equipped to help us solve the pervasive socio-economic and ecological challenges facing us today. . . the transformation of our money system is critical to resolving the challenges of our times . . . monetary diversity is just as important to human survival as biodiversity is to the fate of the earth."

New complementary monetary systems are forming more rapidly than ever before in history. In this information age, people can learn from each other, learn from history and create new community-based solutions like never before and avoid the corrupt and dysfunctional government that prevents solutions to the urgent problems we face.

People are yearning for real democracy, and part of that means remaking and democratizing the monetary system. People can build community and break from the Wall Street finance system. Finance can be re-made as a tool to solve problems, create meaningful work for everyone and transform to a new economy. We can create "sustainable abundance" in ways that are restorative and cooperative.

The creation of the world in which we want to live is in our hands. We've only scratched the surface in this article. We urge you to read Rethinking Money and more that is available on the new economy. And you can hear Jacqui Dunne speak at the Economic Democracy Conference of the Democracy Convention in Madison, Wisconsin, August 7 to 11.

The scam that is the global money system

2015-04-01T23:30:00.000+03:00

It is a story that I have told in my own writings and presentations, particularly in my book, The End of Money and the Future of Civilization, but the video below is well worth viewing. I’ve not been a big fan of Glen Beck, and I abhor the Fox network, which I consider to be a propaganda instrument of the global elite, but this particular program is ironically quite good at telling the story of the creation of the Federal Reserve, the banking cartel, and the collusive arrangement between the bankers and the politicians (that pattern was actually established with the founding of the Bank of England in 1694). Beck’s featured guest, G. Edward Griffin, the author of The Creature From Jekyll Island, is particularly astute in his observations. The conversation only goes astray toward the end when it turns to gold backing, a proposal that is based on a still naive conceptualization of what money is and how it works.

Interestingly, Beck was fired by the Fox network shortly after this program aired, presumably for exposing the scam of the elite cabal that Fox is there to serve.

A Monetary System for the New Millennium

2015-04-01T12:00:00.000+03:00

by Roger Langrick

The Debt Engine is a phrase to describe unrelenting, forever increasing private and government debt. The need to stay ahead of escalating debt fuels practically everything we do; it forces us out of bed in the morning to go to jobs that most of us despise. Corporations make all their decisions around first how to service their snowballing debt, and secondly around profit. Governments spend all their time worrying about how to meet their social agendas while at the same time service the increasing debt load of deficit spending.

As a motivating force, the Debt Engine now exceeds all others in the insane dash of the planet towards self destruction. Universal unrepayable debt creates a social environment in which certain types of behavior flourish and inhibits or destroys any tendency towards long term concerns and nourishment.

Unrepayable Debt is different than the everyday debt of normal life. Unrepayable Debt is an actual built in flaw of our present monetary system: The Fractional Reserve System. It benefits no-one except those intimately connected with the banking industry and in spite of its devastating repercussions, it is a flaw that can be fixed.

Everyone has some ideas about money, who controls it, where it comes from and how it operates. Some say the government prints it; others say hard work makes money, while others would guess that it's something to do with gold. They might also picture it as a vast pile with everyone competing for as much as they can get. Bankers sometimes inflame our passions by claiming that the government has grabbed all the money and there is none left for private industry.

It's all poppycock. Our money supply isn't created by the government; a brilliant idea doesn't make money and neither does hard work (unless you happen to be in the counterfeiting business.) Our money is a national accounting system of who owes what to whom, and it is a system that is owned and operated by the private banking industry.

There is no such thing as a static heap of money created by hard work and business cunning. Money flicks in and out of existence as credit and debit balances; the money supply swells and contracts continuously as loans are created and then destroyed. Money is simply a bookkeeping system; a man created device.

The man who invented the monetary system which we use today was a Scotsman, John Law, who lived during the 18th. century. He invented a new type of money to replace the old one of specie (the use of coins). In doing so he created the mechanism to finance the industrial revolution, and ultimately our modern technological world.

Much has been made of the astounding inventions of that era but what is often forgotten is that most of them would have never have seen the light of day without John Law and his invention: the Fractional Reserve Money System. Without it, there would have been no railroads, no Nissans or G.M.'s, nor would there have been any super highways to drive them on. There would have been no space shuttle, no Love Canal, no drift net fishing, no heart transplants and no Cruise missiles.

What John Law did with his invention of a new money system was enable the Industrial Revolution, with all of its good and bad aspects, to take place. Without him, the Revolution would have fizzled and died and with it, our technological world.

Here was the problem which John Law solved. In the early 1700's the newly industrializing nations of the world were in a perpetual state of economic crisis because their coinage system of money could not keep up with demand. Governments tried everything to increase the money supply. One trick was to make new coins much smaller than the old thereby getting more per ounce, but it was a stop gap measure at best.

To grasp the magnitude of the problem, try to imagine building just one modern skyscraper using only gold coins as finance. The industrialists of the Industrial Revolution were faced with a similar problem; how to build their factories, mills and railroads using only scarce gold coins.

John Law's solution was to create a national paper money supply; banknotes that would be officially recognized as "real money". The advantages were obvious. Paper money could be expanded indefinitely and was much cheaper than specie to make. To get and keep initial public confidence, Law suggested a fraction of gold be always kept on hand for the few people who wanted to redeem their notes.

Through a process of trial and error it was found that specie could support about ten times its value in paper money. That is, a bank which held $10 in gold could safely print and loan out about $100 in paper money. The gold held in reserve was obviously a mere fraction of the banknotes which it supported and so the system became known as the Fractional Reserve System. The private banking industry was chartered by government to create the new money supply of paper notes. Until earlier in this century, banks literally printed their own supply against their own gold reserves with their name on each note, and lent them out to the public and government. Now the federal government has taken on the printing job but the notes are still drawn on private banks.

In the 1930's the convertibility of bank notes was dropped but the Fractional Reserve System is alive and well today, albeit in a more sophisticated form. Cheques or credit cards have largely replaced paper money but the principle remains the same; the banking industry creates the money which government and society then borrows.

John Law's method of money creation is still the dynamo that powers our present world. By replacing specie with a simple national accounting system of credit and debit, he made money infinitely more flexible, able to be contracted or expanded to meet any situation.

However, using the Fractional Reserve System has not been a universally happy experience. It has a built in mechanical flaw that always keeps total national and private debt ahead of the money available to repay it. In fact the more a nation expands, the more it automatically goes into debt to the system over and above the money that it borrows.

To explain, imagine the first bank which prints and lends out $100. For its efforts it asks for the borrower to return $110 in one year; that is it asks for 10% interest. Unwittingly, or maybe wittingly, the bank has created a mathematically impossible situation. The only way in which the borrower can return 110 of the bank's notes is if the bank prints, and lends, $10 more...at 10% interest.

When presented with this scenario, there is often a tendency to think :"Ah, but the borrower can always make the extra $10 somewhere else, through hard work or a deal overseas." However, although we frequently inter change the two sayings, earning money is not the same as making it. Earnings are simply a transfer of money from on ownership to another and neither increase nor decrease the total money in existence. Making money actually does increase the nation's money supply but no-one can do that but the banking industry itself as laid down in its charter from the federal government.

The result of creating 100 and demanding 110 in return, is that the collective borrowers of a nation are forever chasing a phantom which can never be caught; the mythical $10 that were never created. The debt in fact is unrepayable. Each time $100 is created for the nation, the nation's overall indebtedness to the system is increased by $110.

The only solution at present is increased borrowing to cover the principle plus the interest of what has been borrowed. The business or government that cannot expand its borrowing every year is seized by its increasing debt load and dragged under.

Many economists are not unmindful of the problem but pass it off as irrelevant. They say that if the marketplace economy keeps expanding, thereby fuelling an increase in the total money supply, there is no problem with meeting interest payments on an increasing debt load. But under such circumstances, economic expansion is not a luxury but an imperative to stay ahead.

In John Law's day, the need to continuously expand to meet growing debt repayments was seen as a minor problem of no consequence. Today however we all know the planet cannot sustain unlimited growth. Even so, we are stuck with a monetary system that demands continuous expansion or face the chaos of total economic collapse.

The consequences of the Debt Engine are everywhere. Political and business leaders are sacrificing the planet to stay ahead of bankruptcy. Technology is not being used to create a sane and sustainable lifestyle for us all but is being channeled into the most narrow band of activity: the market place activity of "making" money. Just as governments are forced into ignoring vital social and environmental questions in their efforts to balance the books, so many corporations are putting to one side such things as resource depletion and the destruction of the ecosystem in their frantic efforts to remain economically alive.

But the situation is not completely bleak. Just as John Law found a way around the impasse of coinage, so there are solutions for the problem of unrepayable debt. Obviously the first thing to do is make sure that the ratio of credit to debt is always the same. Under the Fractional Reserve System, $100 credit is created and $110 debt is demanded in return; that is, there is always more debt than credit. This equation should be $100 credit equals $100 debt.

The mechanics of how to achieve this were proposed over one hundred and fifty years ago. It was proposed that the nation's money be created by two agencies: the banking industry and government.

Instead of taxes, government would be empowered to create money for its own expenses up to the balance the debt shortfall. Thus, if the banking industry created $100 in a year, the government would create $10 which it would use for its own expenses. Abraham Lincoln used this successfully when he created $500 million of "greenbacks" to fight the Civil War.

A government which creates its own money supply becomes independent and the most important result of freeing government from its present debtor relationship to the banking industry would be to make it more able to respond to social pressures for reform. A financially independent government would be able to pursue long term agendas for the betterment of society. For instance, a twin source of money creation could not only rapidly reduce taxes, but create additional funding for other initiatives. A government having the same right of issue as is now monopolized by the banking industry could fund vital job creating initiatives such as environmental repair and sustainable technology on a scale that is hard to imagine.

America has the resources to lead the world into a sustainable future. But it needs a monetary system which will allow for its resources to be mobilized towards a greater destiny than marketplace superiority. Such a new monetary system with all of its potential would require a dramatic upgrading of society's consciousness and understanding of money. We have to move from a simplistic belief in money having an intrinsic value of its own and see it as a bookkeeping system of the real wealth of our nations. Ultimately our money is not dependent on gold in Fort Knox but on the human and natural resources which it represents.

The world has passed beyond an age of scarcity and the challenge of the new era is not about solving problems of want, but dealing with abundance and how to use it to create a sustainable future. Above all we need the visionaries able to point the way.

In my forthcoming book Superproduction I try to address the potential which is now in our grasp. With computerization, robotics, advances in genetics and food growing, we have the potential to turn the planet into a sustainable ecosystem capable of supporting all. We have the technology to genuinely contemplate colonizing the solar system.

This is not a time to be saddled with an 18th century money system designed around the endless rape of the planet. John Law enabled humanity to scrabble out of scarcity but now his system is antiquated. Philosophically it is based on the robber baron mentality and technically it is flawed with Unrepayable Debt. As such it is unable to respond either to the abundance which it created or the problems which it spawned.

The Debt Engine has distorted the potential of the Industrial Revolution and forced us into a narrow focus of marketplace ethic. A new monetary system with enough government control to ensure funding of vital issues could unlock the creative potential of the entire nation. By redirecting the focus of our national economy, a new monetary system would enable men and women who can think in terms of abundance not only for themselves but how also to use it for the benefit of the entire planet. I know John Law would approve.