Salinas-Price: A Billionaire With The Right Ideas

A Mexican billionaire and ex-presidente, Hugo Salinas Price is putting his time into restoring a sound economy...  he keeps definitions straight...

The argument that “banks make loans and thus create money, but do not create the money to pay the interest on the loan” is a specious and confusing argument because, on the one hand the power which modern banking systems have to create money out of nothing by granting credit is an anti-social power based on fraud, since real money can only be gold and silver and these cannot be created out of nothing.

But this article is an indication where recovery may happen after the coming crash...

In the 1950's the city was the national center of a bustling shoe-manufacturing industry. Back then, the Mexican market for shoes was protected from foreign competition, and Mexico with a population of some 35 million obtained its shoes from Leon manufacturers.
The industrial activity in the production of shoes was intense, and Capital was always scarce. Money to finance the operations of a multitude of manufacturers of shoes and related industrial activities was very scarce and all business faced a constant struggle for liquidity to keep operations going.
Bank credit was extremely scarce; the productive enterprises related to the manufacture of shoes could not obtain any significant amount of bank credit; their discipline in accounting and elaborating financial statements was minimal - to produce, sell and collect was the immediate necessity - and could not meet the bureaucratic requirements of the banks.
The struggle to stay in business was an unrelenting ordeal.
The scarcity of money in the productive system led to entrepreneurial invention to cope with the problem; the entrepreneurs resorted to issuing post-dated checks, in lieu of money, which they did not have.

So with a non-functioning lock-down by government, relatively free markets evolved.  Not the ideal, but workable.  Note when it ended...

I have described the improvisation to which the entrepreneurs of Leon resorted to keep their production of shoes flowing. Necessity forced them, entirely spontaneously and illegally, to invent a cash-substitute; the system continued to operate up until the 1980's, when new banking regulations forced the system to close down; it was a system based principally on confidence that the debtor would fulfill his promise to have the funds in the bank, against which the post-dated check could be cashed.

It ended when the USA bankers flood of EZ Credit wiped out the indigenous finance systems.  The Mexican system was not ideal, but not as bad as what Uncle Sam exported into Mexico.

Salinas-Price makes a recommendation which was not the Mexican compromise nor the Gringo imperialism...

The Manufacturer of shoes sold his shoes to the Retailer. The manufacturer presented his Bill, payable in 90 days. The retailer "accepted" the Bill and signed his name to it. This Bill was the next best thing to gold (which was used as money at that time) because according to the Scottish legal system, a Bill not paid within 24 hours of its presentation for payment placed the whole business and personal wealth of the Accepter - in this case, the Retailer - up for sale at auction; the proceeds to be used to pay the Bill which the Retailer had not been able to liquidate on time.

Now, truly that system is an improvement over either of the preceding.    It is natural, organic, just, but there are two flaws...

1. Usury

2. State-enforced.

The state enforcement was unnecessary... for as Salinas price notes:

However, the penalty of defaulting on a Bill presented for collection was not the only factor guaranteeing payment, because the default forever tarnished the reputation of the Acceptor of the Bill. Enterprises in England and Scotland proudly put the date of their foundation after their corporate names, to indicate that they had never once defaulted upon a Bill presented for collection.

Now ask how come the Scottish experiment ended?  I'd say for the usury, the interest payments, which was utterly unnecessary to make the system work.  In the previous essay noted, Salinas-Price notes the right action of no usury in islamic finance, a fundamental in Christian finance too, for usury (any interest at any rate for any time period) is also strictly forbidden.

And inherently unjust system will not last.  I hope Salinas-Price will formalize his views to embrace free market vendor finance while eschewing state-backed violence and usury.

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