Anarchy, Money & Definitions

Read this sentence aloud:

"There are only 10 kinds of people...."

You said "There are only ten kinds of people..."

Now I'll finish the sentence...

"those who think binary and those who don't."

Now, reread that first sentence and second part together.  If the second time you said out loud

"There are only two kinds of people, those who think binary and those who don't."

then you have an esoteric knowledge.  You are familiar with a numbering system few people use or understand, let alone read.  (It's the system our computers use.)

And you use specialized information correctly.  To the vast majority of people, they would not know what you were talking about, if you had a conversation with them.  In fact, if the definitions mattered to the conversation, you'd have to 01010110 them from the conversation just so you could make some progress.  Before they could join the conversation, they'd have to learn the definitions.

One term rarely used correctly is money.  Over 100011111100 years ago, Aristotle identified 0101 essential attributes that are necessary for a money:  It has to be durable, divisible, convenient, consistent, and have value in itself. 

Based on that definition there are some elements that may support any given item emerging as money.  If an element makes the candidate more durable, then it is more likely to emerge as money.  If a certain item is easily divisible, then it will recommend itself.  But often that which is durable is not easily divisible.  So these facets tend to be contradictory.  Water has value in itself, indeed, it is the second most important thing in life, next to air, but there is too much of it to be used as money.  And water has too many versions to be consistent, but nothing is more easily divisible.  What is there that best holds these contradictory elements together at once?

Notice what Aristotle did not say in defining money: gold.  But then he did not need to because few materials in life have all of those aspects, and gold is prime, so it tends to be used as money in all times and places.  Silver works well too.  In history we see conch shells and Marlboro cigarettes as money too, but only because, of all that was available in that time and place, it was that odd item that was closest to that which serves as money.  (update 2016: this is an error, those were used as tallies, not money). Gold was not available.

And if something has more attributes, rather unseen, then all the better.  For example, gold and silver are antibiotic.  That is to say when merchants make a payment, the medium they use, when the trade from hand to hand, is antibiotic.  This suppresses the spread of disease.  Silver does this as well, and copper and nickel to a much lesser degree.  And curiously, as atomic scientists have discovered more elements over the last two centuries, those that have antibiotic properties end up being offered as coins, such as rhodium and platinum, those elements that have no antibiotic properties for some reason never make it into the form of coin such as tantulum and iridium (except in novelty quantities).

As an aside, if money was properly defined, it might instance epidemiologists to track the bubonic plague as paper money replaced gold in trade in the middle ages.  Where and when did paper currency show up? 

One reason we cannot get our way out of this economic mess is we cannot begin to have a useful discussion when our terms are defined at once incorrectly and variably.  Talking past each other is inevitable.

One argument about money is the proper amount for an economy.  My head aches when I hear such questions.

1. There is an internal contradiction in the question. If it emerged as money, that presupposes it is the right amount of money to supply the needs.

2. Anyone posing such a question is no longer talking about money, but about derivatives, like warehouse receipts for money.  (If it is a warehouse receipt, it is not money.)  What they are talking about is currency, and warehouse receipts as currency.  Once, Federal reserve notes were warehouse receipts for gold in Fort Knox.  They no longer are.  But we commonly called Federal Reserve notes "money" and although they stopped being warehouse receipts, they are still called money.  When they stopped being warehouse receipts, they were simply fiat currency.  Fiat means faith, or credit.  So federal reserve notes today, are not money, there are not warehouse receipts for money, they are notes on credit used as currency in business.

Now,  notes on credit used as currency in business is nothing new in history or commerce and not a problem in its own right.  The only problem is if the state gets involved, or worse, claims a monopoly on the practice.  As a matter of course the state, if it engages in credit, must declare a monopoly, for no one in their right mind would ever trust a state to do the right thing.  Why businesses can trade in notes on credit used as currency is at that level the business is checking the credit and if wrong suffers any consequences directly and limited to its own decisions.

You head will ache to if you review what wikipedia has to say about money supply, a term inherently wrong, but universally used.

http://en.wikipedia.org/wiki/Money

Money is any object or record that is generally accepted as payment for goods and services and repayment ofdebts in a given socio-economic context or country.^[1][2][3] The main functions of money are distinguished as: amedium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment.^[4][5] Any kind of object or secure verifiable record that fulfills these functions can serve as money.

Now, with this misdefined term, the discussion continues, what is the optimum money supply?  Arrrggghhh...

http://en.wikipedia.org/wiki/Money_supply

Money supply:  In economics, the money supply or money stock, is the total amount of monetary assets available in an economy at a specific time.^[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)

Wrong, and wrong. Given their outlines of the discussion, we can see that wikipedia cannot enter into the discussion, since it does not define the terms properly to begin with.  Follow wiki and you stray into ignorance, at least in the discussions above.

If it is money, as defined by Aristotle, or more succinctly "a medium of exchange (and a store of value)" then there is no need to discuss the right money supply.  The amount available is the right amount.  How do we know?  Because the market has made it money.

And the market precisely regulates how much money is in circulation.  Since money is often gold and silver, let's use that as an example.  As Spooner noted, as gold comes out of the ground, it is put into the form of coins (in history this was a private business.)  As the coin is spent into commerce, if the buying power gold commands drops because of excess supply, then jewelers begin to convert the coins into jewelry, decoration and plate, taking the coins out of circulation.  There is a signal where jewelers will get more for jewelry than for coin.  When there is too little in coin available, then the price goes up and

jewelry, decoration and plate get melted down and converted to coins (we are there right now.)

But what if a massive gold mine was discovered?  It has to be brought up.  The owners will bring it up as is financially sensible.  That is Russia today.  OK, what if a solid gold asteroid hit earth and there was trillions in gold immediately available?  Aside from that not happening, everything would simply be repriced given the new amount of gold.  No change.

From history we have a better example.  Spain was flooded with New World gold, stolen in violation of property rights.  This flood of gold so distorted Spain's economy, 400 years later they have not recovered.  Portugal was even more avaricious, but an earthquake in 1755 levelled their capital and destroyed their ability to be imperialistic.  Portugal was spared much by being destroyed.  

If there is any event in which anarchy is most proven as a benefit and a discipline it is the event in which money emerges.  Anarchy literally means no + king, and alternatively defined as spontaneous order out of chaos.  Money emerges as a medium of exchange (and since it emerges from a commodity that is already serving as a store of value, more or less, it retains its other nature as a store of value) out of the chaos of nothing yet serving as money.  Money brings spontaneous order out of chaos, and it is a purely market function.  

If we first define money properly (a huge "if") then we realize there can be no state participation in anything to do with money.  Money and the state are necessarily mutually exclusive events.  The only way the state can seem to have any relevancy is if something not money is misdefined as money.

Anarchists are the only ones who define money properly.  They are the only ones who can have a substantive conversation on the topic.  As such, they are the only ones likely to come up with a solution that matters or will work.  As sure as 01 + 01 = 10.

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Bitcoins Are Not Money

EPJ asked leading Austrian economists if bitcoins were money and almost all either said not yet, or yes. Several of the respondents I have sat for in economics lessons.  I would begin to doubt my insistence on the correct definition of money if I was alone, but I think the lot of them suffer from a error Mish Shedlock is not making.

For example, as one respondent said,

The answer is "Yes". Money becomes real when people have faith in it.

No, if it is on faith it is credit not money.

Bitcoins are tallies.  There are tallies of who owes what to whom, and there is the credit extended.  So credit extended, and the records thereof.

Why does it matter?  Well, how come of all the Austrian economists, only Mish was able to see there would be no hyperinflation (yet).  Because Mish is the only one that could analyze the facts, by keeping definitions straight, and arrive at the correct analysis.

As a side note, when societies are wiped out by natural disasters, the archaeologists find tallies everywhere.  When wiped out by conquest, they find stashes of gold and silver (money).  Money shows up when faith in each other (credit) no longer works.

What is money? In summary: medium of exchange and store of value.

Money solves the problem of rare double coincidence: how often does the shepherd want 250 eggs, and the chicken ranger want a lamb, at the same time and place?  Not very often.  Gold and silver alleviates the necessity of double coincidence as the shepherd can trade lamb chops for this much silver, lamb shanks for that much, and by the time the market day is over, sell off the lamb parts to ten different buyers, and then in turn trade some silver for bread, some for wine, some for eggs.  Not only does it facilitate trade, it promotes division of labor, the essence of true wealth in society.

Money emerges from a known commodity, and is a store of value inasmuch as it is still a commodity. People mistake “a store of value” for “an absolute in price stability.”    They want something magical from money, and when it is not there, they prefer a king fight their battles for them, and accept the pretense of an absolute store of value in fiat currency.  Odd that, since without exception, every fiat currency in history has failed.  As will the USDollar in time.  No telling when, but it will.

Aristotle got the ball rolling in defining money as:

http://www.hangthebankers.com/aristotle-and-the-definition-of-money/

1.) It must be durable. Money must stand the test of time and the elements. It must not fade, corrode, or change through time.

2.) It must be portable. Money (must) hold a high amount of ‘worth’ relative to its weight and size.

3.) It must be divisible. Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be ‘fungible’. 

4.) It must have intrinsic value. 

Please note that no piece of paper nor any binary electronic record fits that definition.

Number four gets to the issue of why money comes from a commodity.  Money has a value even if not used as money. There is nothing that says the intrinsic value as a commodity must be stable, but that human desire to have what cannot be causes much of the mischief around money. The commodity that backs money is often relatively stable, by a wide margin, but it is never absolutely stable.

So you can see why gold and silver have traditionally been money, given Aristotle’s definition.  And you can see why Aristotle defined money as he did by observing why gold and silver were commonly money.

Others have tried add to the definition of Aristotle, but note the error, the definitions get to circumstances around money, and not money itself:

1. Acceptability.  If it emerges as a medium of exchange, then the acceptability is already there.  Acceptability is not talking about money, but about circumstances.

2. Limited supply or scarce: simply not so...  the arguments for scarcity fail to apprehend portability means concentration.  Also, whatever the supply of money is necessarily perfect.  If a ball of gold from space dropped spectacularly onto Siberia immediately doubling the known above-ground amount of gold, the next day all prices would simply double.  Contracts in gold would be repudiated given the “act of God” and there would be some disputes, but a doubling would have little impact.  But never mind this, it has never happened.  What does happen, as Spooner noted, when the price of gold drops, there is more coin turned into plate, decoration and jewelry, when it rises, that plate, decoration and jewelry gets melted down into coin.  (And this is why jewelers have traditionally been bankers.)  Talk of scarcity is grounded in a misunderstanding of money.

Any talk of "money shortage" is simply Keynesian belief that the market can be stimulated by counterfeiting currency.  There is no shortage of money at any given time, but there certainly can be disruptions due to war and reactions to Government policy that wrecks credit among traders.

3. Noncounterfeitability.  Again, if it was counterfeitable, then it would not have emerged in the first place.  Gold and silver as commodities are almost impossible to counterfeit.

4. Money is uniform. Each denomination should be the same everywhere in the country. Gold and silver do this, and even worldwide. And this argument lets the camel’s nose in the tent.  To whom do we trust to define uniformity?  Why, the State of course!  This definition is not only dishonest, it is malevolent.  Federal reserve notes, for example, are not only fraudulent, they are backed by violence.

There is a definition I’ll add, that Aristotle could not have noticed, a characteristic I noticed: money is disinfectant.  Since money is usually used in international trade, while the goods laden on the vessel or camel are transferred to another conveyance, the merchant captain and the broker actually trade metal (gold or silver).  The disease on the hands of the traders are killed by the medium of exchange.  What is interesting is as new metals are discovered, the ones that are antibiotic are made into coins and the others are not.

When President Roosevelt seized all private gold back in the 1930's, the one exception was private sources of gold used for international trade.

So what is money? A medium of exchange and a store of value with these characteristics -

1.)  durable. 

2.) portable. 

3.) divisible. 

4.) intrinsic value. 

5. disinfectant.

As mentioned in a previous post, warehouse receipts are not money.  Fiat currency is not money. They are warehouse receipts or fiat currency.  If you can keep apples and oranges straight, why not warehouse receipts and fiat currency notes?

Tallies of credit allotted are not money.  Tallies are not money.  Credit is not money.  Electronic binary records of a tally of credit is not money.

If you do not mind being wrong in your analysis, then think in sloppy terms.  If you want to be sharp and tight and arrive at correct conclusions, as Mish has on the universally expected hyperinflation, then get your definitions right.

Why have my heroes all got it wrong on the definition of money?  I think because they all allow “interest” (usury) as acceptable in economics, and are confounded for their perfidy.  I too was perfidious on this point, and repented of it to good effect.

Keep the definition of money tight and you’ll benefit.

Also, I am completely satisfied that bitcoins originated in a State-sponsored experiment into "money" theory.  There is no Satoshi, only a USA researcher whose heyday was when Japan was king.

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Money

Folks,

Danny DeVito has a funny line in the David Mamet movie "Heist" in which his
character says to Gene Hackman "Of course you want money, everyone wants money,
that's why they call it money."

What is odd in popular economics is they have a hard time defining money,
probably for the same reason they have a hard time defining "free trade;"
probably because they are never really talking about "money." Something else.

The current USA President has thrown down the gauntlet to the Chinese over
"money," and the Chinese management of their money. If you want to learn about
money, get some definitions straight and think clearly about it, here is a
good starting place:

http://www.mises.org/fullstory.asp?control=1333


The Origin of Money and its Value


by Robert P. Murphy


[Posted September 29, 2003]


The importance of the Austrian school of economics is nowhere better

demonstrated than in the area of monetary theory. It is in this realm that

the simplifying assumptions of mainstream economic theory wreak the most

havoc. In contrast, the commonsensical, "verbal logic" of the Austrians is

entirely adequate to understand the nature of money and its valuation by

human actors.


Menger on the Origin of Money


The Austrian school has offered the most comprehensive explanation of the

historical origin of money. Everyone recognizes the benefits of a

universally accepted medium of exchange. But how could such a money come

into existence? After all, self-interested individuals would be very

reluctant to surrender real goods and services in exchange for intrinsically

worthless pieces of paper or even relatively useless metal discs. It's true,

once everyone else accepts money in exchange, then any individual is also

willing to do so. But how could human beings reach such a position in the

first place?


One possible explanation is that a powerful ruler realized, either on his

own or through wise counselors, that instituting money would benefit his

people. So he then ordered everyone to accept some particular thing as

money.


There are several problems with this theory. First, as Menger pointed out,

we have no historical record of such an important event, even though money

was used in all ancient civilizations. Second, there's the unlikelihood that

someone could have invented the idea of money without ever experiencing it.

And third, even if we did stipulate that a ruler could have discovered the

idea of money while living in a state of barter, it would not be sufficient

for him to simply designate the money good. He would also have to specify

the precise exchange ratios between the newly defined money and all other

goods. Otherwise, the people under his rule could evade his order to use the

newfangled "money" by charging ridiculously high prices in terms of that

good.


Menger's theory avoids all of these difficulties. According to Menger, money

emerged spontaneously through the self-interested actions of individuals. No

single person sat back and conceived of a universal medium of exchange, and

no government compulsion was necessary to effect the transition from a

condition of barter to a money economy.


In order to understand how this could have occurred, Menger pointed out that

even in a state of barter, goods would have different degrees of

saleableness or saleability. (Closely related terms would be marketability

or liquidity.) The more saleable a good, the more easily its owner could

exchange it for other goods at an "economic price." For example, someone

selling wheat is in a much stronger position than someone selling

astronomical instruments. The former commodity is more saleable than the

latter.


Notice that Menger is not claiming that the owner of a telescope will be

unable to sell it. If the seller sets his asking price (in terms of other

goods) low enough, someone will buy it. The point is that the seller of a

telescope will only be able to receive its true "economic price" if he

devotes a long time to searching for buyers. The seller of wheat, in

contrast, would not have to look very hard to find the best deal that he is

likely to get for his wares.


Already we have left the world of standard microeconomics. In typical

models, we can determine the equilibrium relative prices for various real

goods. For example, we might find that one telescope trades against 1,000

units of wheat. But Menger's insight is that this fact does not really mean

that someone going to market with a telescope can instantly walk away with

1,000 units of wheat.


Moreover, it is simply not the case that the owner of a telescope is in the

same position as the owner of 1,000 units of wheat when each enters the

market. Because the telescope is much less saleable, its owner will be at a

disadvantage when trying to acquire his desired goods from other sellers.


Because of this, owners of relatively less saleable goods will exchange

their products not only for those goods that they directly wish to consume,

but also for goods that they do not directly value, so long as the goods

received are more saleable than the goods given up. In short, astute traders

will begin to engage in indirect exchange. For example, the owner of a

telescope who desires fish does not need to wait until he finds a fisherman

who wants to look at the stars. Instead, the owner of the telescope can sell

it to any person who wants to stargaze, so long as the goods offered for it

would be more likely to tempt fishermen than the telescope.


Over time, Menger argued, the most saleable goods were desired by more and

more traders because of this advantage. But as more people accepted these

goods in exchange, the more saleable they became. Eventually, certain goods

outstripped all others in this respect, and became universally accepted in

exchange by the sellers of all other goods. At this point, money had emerged

on the market.


The Contribution of Mises


Even though Menger had provided a satisfactory account for the origin of

money, this process explanation alone was not a true economic theory of

money. (After all, to explain the exchange value of cows, economists don't

provide a story of the origin of cows.) It took Ludwig von Mises, in his

1912 The Theory of Money and Credit, to provide a coherent explanation of

the pricing of money units in terms of standard subjectivist value theory.


In contrast to Mises's approach, which as we shall see was

characteristically based on the individual and his subjective valuations,

most economists at that time clung to two separate theories. On the one

hand, relative prices were explained using the tools of marginal utility

analysis. But then, in order to explain the nominal money prices of goods,

economists resorted to some version of the quantity theory, relying on

aggregate variables and in particular, the equation MV = PQ.


Economists were certainly aware of this awkward position. But many felt that

a marginal utility explanation of money demand would simply be a circular

argument: We need to explain why money has a certain exchange value on the

market. It won't do (so these economists thought) to merely explain this by

saying people have a marginal utility for money because of its purchasing

power. After all, that's what we're trying to explain in the first place—why

can people buy things with money?


Mises eluded this apparent circularity by his regression theorem. In the

first place, yes, people trade away real goods for units of money, because

they have a higher marginal utility for the money units than for the other

commodities given away. It's also true that the economist cannot stop there;

he must explain why people have a marginal utility for money. (This is not

the case for other goods. The economist explains the exchange value for a

Picasso by saying that the buyer derives utility from the painting, and at

that point the explanation stops.)


People value units of money because of their expected purchasing power;

money will allow people to receive real goods and services in the future,

and hence people are willing to give up real goods and services now in order

to attain cash balances. Thus the expected future purchasing power of money

explains its current purchasing power.


But haven't we just run into the same problem of an alleged circularity?

Aren't we merely explaining the purchasing power of money by reference to

the purchasing power of money?


No, Mises pointed out, because of the time element. People today expect

money to have a certain purchasing power tomorrow, because of their memory

of its purchasing power yesterday. We then push the problem back one step.

People yesterday anticipated today's purchasing power, because they

remembered that money could be exchanged for other goods and services two

days ago. And so on.


So far, Mises's explanation still seems dubious; it appears to involve an

infinite regress. But this is not the case, because of Menger's explanation

of the origin of money. We can trace the purchasing power of money back

through time, until we reach the point at which people first emerged from a

state of barter. And at that point, the purchasing power of the money

commodity can be explained in just the same way that the exchange value of

any commodity is explained. People valued gold for its own sake before it

became a money, and thus a satisfactory theory of the current market value

of gold must trace back its development until the point when gold was not a

medium of exchange. *


The two great Austrian theorists Carl Menger and Ludwig von Mises provided

explanations for both the historical origin of money and its market price.

Their explanations were characteristically Austrian in that they respected

the principles of methodological individualism and subjectivism. Their

theories represented not only a substantial improvement over their rivals,

but to this day form the foundation for the economist who wishes to

successfully analyze money.



----------------------------------------------------------------------------

----


Robert Murphy has been a summer fellow at the Mises Institute and now

teaches economics at Hillsdale College. robert_p_murphy@yahoo.com. See the

Study Guide on money. See the Murphy Archive.

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Confusion Over Interest (Usury) and Profit

So, A. I can make money selling grain, and turn a profit.  Buy grain cheap in Iowa and sell it for a profit in New York. This is legitimate.

B. I can lend money to someone to do the above, if I share in the profit or loss, with no guarantees.

C. But I cannot lend money to someone to do the above where I am guaranteed my money back and a percentage above what I lent, for some set time.  This is usury, and is forbidden by all major religions (probably all religions) in all instances in all forms, for any time period.

Then why is the practice so widespread?  Within all religions there are those who get around the prohibition with semantics.

But let's go back to profit vs. usury.  Clearly A is an example of a profit being made, and A is how most business transactions occur (although the money behind the transaction may have a usurious aspect, such as payment by credit card.)

B is very often how deals are constructed, and there is no problem there.  The profit is the same as in A, the distribution is decided ahead of time.

So how is C different from A and B? First let's get to definitions.  A profit is a gain on a trade.  Usury is a gain on the lending of a medium of exchange (money).  Since the money lent out is the same as the money that comes back, nothing was traded.  There is a word for making money on money, or any other commodity on commodity, where the deal is between someone who will have what was lent out returned (no trade) plus more of the same, the word is usury. Profit applies to trade. If there is no trade, the word for making money on money (or same on same) is called usury.  Usury makes clear the deal is not making money on trade, but making money on money.

Shouldn't risk be rewarded?  Bankers introduced this idea.  Businesspeople never take risks, at least not in the sense commonly held, and certainly not in the sense used in any economics textbooks, not even the Austrian Economics textbooks.  Bankers run a very risky business, usury based on fractional reserves, an extremely risky proposition, for their customers.  When a bank folds, it is not the banker who loses, it is the bankers' customers.  The "con" in con artist is sort for confidence, their game is to get you to have confidence in yourself.  The banker pays for textbooks that read "entrepreneurs take risks."

Specifically, bankers can create "money" and lend it out and make money and gain wealth and power, but they cannot create "money" and spend it themselves, or at least it is foolish for them to do so.  The "money" bankers create is funny money, which gets out there, earns interest, is returned and destroyed by zeroing out the asset/liability balance sheet.  The bankers can then safely spend the interest they "earned."  If a banker were to create money and spend it on say an apartment building, he would have to make the interest payments (or no, to himself) but the foolish thing is he would have an asset that very well may have its value go below the loan value, for a loss?  Why risk loss when there is so much to be made risk-free lending money at usury?  Plus, every banker knows the boom and bust cycle, so they know that at any given time, the economy will bust and they want to have cash, not houses.  That is where we are today.

When a business person calculates subjective value, it is based on his knowledge and expectations.  He trades based on that knowledge.  The trade itself represents no risk.

For whatever the entrepreneur has traded, he already has customers, whether is is a regular flow of buyers for his thermocouplers, or his medical practice.  Events such a unexpected snowstorms or being killed by a truck are always a risk in life, but they are universal risks, not specific to trade (although, no doubt, the impact is felt.)

A modern banker makes money on money. He provides no value in the distribution process, but he offers what appears to be a shortcut to prosperity.  "If I can only get the finance..."  No, son, if you can only get the customers...  bankers get us to ask the wrong question.

 If I sell something for more than it cost me to make or buy, my customer has benefitted, and I will never see what I sold again. I've earned a profit providing a useful good or service to another who voluntarily bought.  That is business, making money on a trade.

A banker creates "money" and expects to have it returned, plus more of the same, from some other supply (one aspect of money is fungibility.)  By these means the bankers aggregate power and influence policy makers to pattern the law in a manner that protects the bankers first and foremost.

One of the patterns of law the banker has used his power to effect is, if he makes a bad loan, the taxpayers will have to make up the loss.

So here is the key difference:

In trade, we expect to earn a profit selling what we expect to never see again.  Whether our participation is money or time, we in some measure participate in any profit or loss.  If money "gets the ball rolling" the money is from savings of a participant, not debt.  If someone loaned money into the deal, it was to participate in the profit or loss.

In usury, we expect to gain an increase lending what we expect to see again soon enough. Our participation is strictly money, and we will not participate in any profit or loss. "Money" is what gets the ball rolling, and necessarily it comes come debt, never savings. When the banks lend money into a deal, it is expressly stated they will not participate in the profit or loss.

The key in capitalism is capital-formation, either through savings which is benign, or debt which is malignant.  What makes capitalism evil is when bankers introduce usury, and then the evil is exponential when the bankers create "money" through fractional reserve processes, made legal.

Now, he world can function quite well without usury, just as many people learn to love quite well without credit.  You just pay for things when you can.  It is a different world, but a quite pleasant one.

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Understanding Currency

Folks,

Currency is a big topic this year, as I have been suggesting, and this
article may be helpful with its fundamental explanations.

John


http://www.mises.org/fullstory.asp?control=991


The Supply-Side Gold Standard: A Critique



by Frank Shostak


[Posted June 27, 2002]


According to "supply-side" economics, the key to economic growth and

prosperity is low marginal tax rates. However, the supply-side school also

maintains that a low marginal tax rate will not be sufficient, that it must

be accompanied by a monetary policy that aims at achieving price stability.

The pillar of the proposed monetary policy is a gold-price rule, where the

central bank targets the dollar gold price at a specified figure.


Let us say that the Fed has concluded that the "correct" target must be $350

per ounce of gold. If the price of gold falls to below $350 per ounce, this

is indicative of growing demand for money, which the Fed then must

accommodate through open market purchases of government securities, i.e., an

injection of money into the economy. As a result of this injection, the

price of gold will go up.


Conversely, if the price of gold rises above $350 an ounce, it means that

people's demand for money has fallen and that the central bank must take

money out of the system. By selling government securities, money will be

taken out of the system. This, in turn, will exert downward pressure on the

price of gold.


Observe that, for supply-side proponents, gold is not money but rather an

instrument to stabilize the present paper standard. The chief role of money

within this framework of thinking is that money fulfills the role of a unit

of account. Since it is imperative that this unit must remain stable in

order to fulfill this role, supply-siders hold that anchoring the dollar to

gold will do the trick. This, in turn, will make the dollar as good as gold.


But is the definition of money as predominantly a unit of account valid?


Defining money

The purpose of a definition is to present the essence--the distinguishing

characteristic of the subject we are trying to identify. A definition aims

at telling us what the fundamentals of a particular entity are.


To establish a definition of money, we have to ascertain how the money

economy came about. Money emerged because barter could not support the

market economy. A butcher who wanted to exchange his meat for fruit might

not have been able to find a fruit farmer who wanted his meat, while the

fruit farmer who wanted to exchange his fruit for shoes might not have been

able to find a shoemaker who wanted his fruit.


The distinguishing characteristic of money is that it is the general medium

of exchange. It has evolved from the most marketable commodity. On this

Mises wrote,


There would be an inevitable tendency for the less marketable of the

series of goods used as media of exchange to be one by one rejected until at

last only a single commodity remained. Which was universally employed as a

medium of exchange; in a word money.[1]

Since the general medium of exchange emerged from a wide range of

commodities, money must be such a commodity.


Consequently, according to Rothbard,


Money is not an abstract unit of account, divorceable from a concrete

good; it is not a useless token only good for exchanging; it is not a claim

on society; it is not a guarantee of a fixed price level. It is simply a

commodity.[2]

Moreover, "an object cannot be used as money unless, at the moment when its

use as money begins, it already possesses an objective exchange value based

on some other use" ( Mises 1980, p. 131).


Why?


In contrast to directly used consumers or producers goods, money must have

pre-existing prices on which to ground a demand. But the only way this can

happen is by beginning with a useful commodity under barter, and then adding

demand for a medium to the previous demand for direct use (e.g., for

ornaments, in the case of gold). (Rothbard 1981, pp. 3-4).

In short, money is that for which all other goods and services are traded.

This fundamental characteristic of money must be contrasted with those of

other goods. For instance, food supplies the necessary energy to human

beings, while capital goods permit the expansion of infrastructure that in

turn permits the production of a larger quantity of goods and services.


In its capacity, money also fulfills the role of the medium of savings, the

role of a unit of account, and a store of value. The fundamental role--the

essence--of money, however, is that of a general medium of exchange. Because

of this, all other functions of money emerge. In short, the fact that a good

becomes the medium of exchange gives rise to these other functions.


Is there a need to accommodate the demand for money?

When we talk about demand for money, what we really mean is the demand for

money's purchasing power. After all, people don't want a greater amount of

money in their pockets so much as they want greater purchasing power in

their possession.


On this Mises wrote,


The services money renders are conditioned by the height of its purchasing

power. Nobody wants to have in his cash holding a definite number of pieces

of money or a definite weight of money; he wants to keep a cash holding of a

definite amount of purchasing power.[3]

In a free market, in similarity to other goods, the price of money is

determined by supply and demand. Consequently, if there is less money, its

exchange value increases. Conversely, the exchange value falls when there is

more money. In short, within the framework of a free market, there can be no

such thing as "too little" or "too much" money. As long as the market is

allowed to clear, no shortage of money can emerge.


Consequently, once the market has chosen a particular commodity as money,

the given stock of this commodity will always be sufficient to secure the

services that money provides. Hence, in a free market, the whole idea of

managing the supply of money in line with changes in the demand for money as

suggested by the proponents of supply-side economics is absurd.


According to Mises:


As the operation of the market tends to determine the final state of

money's purchasing power at a height at which the supply of and the demand

for money coincide, there can never be an excess or deficiency of money.

Each individual and all individuals together always enjoy fully the

advantages which they can derive from indirect exchange and the use of

money, no matter whether the total quantity of money is great, or small. . .

. the services which money renders can be neither improved nor repaired by

changing the supply of money. . . . The quantity of money available in the

whole economy is always sufficient to secure for everybody all that money

does and can do.[4]

But how can we be sure that the supply of a selected commodity as money will

not start to rapidly expand on account of unforeseen events? Would that not

undermine people's well-being? If this were to happen, then people would

probably abandon this commodity and settle on some other commodity.

Individuals, who strive to preserve their life and well-being, will not

choose a commodity that is subject to a steady decline in its purchasing

power as money.


This is the essence of the market-selection process and the reason why it

took several thousands years for gold to be selected as the most marketable

commodity. In short, the prolonged market-selection process raises the

likelihood that gold is the most suitable commodity to fulfill the role of

money.


Furthermore, the accommodation of rising demand through the expansion of

money supply will in fact achieve contrary results, because people do not

want more money but more purchasing power. However, raising the supply of

money will dilute its purchasing power and thereby deny people's wishes. It

is like suggesting that because the demand for the Mona Lisa painting has

gone up, we ought to lift the supply by producing counterfeit paintings.


"Dollar" not an independent entity

Since in a true free-market economy, money is gold, there is no such thing

as an independent entity such as a "dollar." Prior to 1933, the name

"dollar" was used to refer to a unit of gold that had a weight of 23.22

grains. Since there are 480 grains in one ounce, this means that the name

dollar also stood for 0.048 ounce of gold. This in turn, means that one

ounce of gold referred to $20.67. Now, $20.67 is not the price of one ounce

of gold in terms of dollars as popular thinking has it, for there is no such

entity as a dollar. Dollar is just a name for 0.048 ounce of gold. On this

Rothbard wrote,


No one prints dollars on the purely free market because there are, in

fact, no dollars; there are only commodities, such as wheat, cars, and

gold.[5]

Likewise, the names of other currencies stood for a fixed amount of gold.

The habit of regarding these names as a separate entity from gold emerged

with the enforcement of the paper standard. Over time, as paper money

assumed a life of its own, it became acceptable to set the price of gold in

terms of dollars, francs, pounds, etc. The absurdity of all this reached new

heights with the introduction of the floating currency system.


In a free market, currencies do not float against each other. They are

exchanged in accordance with a fixed definition. If the British pound stands

for 0.25 of an ounce of gold and the dollar stands for 0.05 ounce of gold,

then one British pound will be exchanged for five dollars. This exchange

stems from the fact that 0.25 of an ounce is five times larger than 0.05 of

an ounce, and this is what the exchange of 5-to-1 means.


The absurdity of a floating currency system is no different from the idea of

having a fluctuating market price for dollars in terms of cents. How many

cents equal one dollar is not something that is subject to fluctuations. It

is fixed forever by definition[6].


In a free market, therefore, the meaning of the gold standard is that gold

is money. Contrast this with the supply-side framework, which views gold as

separate from the dollar. Curiously, supply-siders call the scheme a "gold

standard," which is, of course, erroneous.


Once it is realized that in a free market the name dollar stands for a fixed

weight of gold, it will obviously be preposterous to contemplate the

gold-price rule as suggested by the supply-siders.


Furthermore, once it is realized that money is a commodity, it is obvious

that, in similarity to other goods and services, its exchange value cannot

stay still but will vary in accordance with the supply and demand of gold

and supply and demand of other goods and services. Any attempt to stabilize

prices amounts to stifling the operation of the market economy and results

in the misallocation of resources and economic impoverishment.


Gold-price rule: Recipe for boom-bust cycles

According to supply-siders, the major factor behind boom-bust cycles is not

the Federal Reserve but the high marginal tax rate. For instance, in his

various writings--including the book The Way the World Works--J. Wanniski

regards a high tax rate as the cause of boom-bust cycles. According to

Wanniski, the monetary policy of the Fed has very little to do with

boom-bust cycles. In fact, in a note he wrote, "But first, the Fed (and the

gold standard) needs to be absolved of guilt for the 1930s. The Great

Depression was caused by rising tariffs and taxes worldwide…"


The problem with all this is a failure to define what boom-bust cycles are

all about. The distinguishing characteristic of a successful producer is his

ability to "read the market correctly" and thereby establish a profitable

production structure. It is in the interest of every businessman to secure a

price where the quantity of goods that is produced can be sold at a profit.

In setting this price, a producer/entrepreneur will have to consider how

much money consumers are likely to spend on the product. He will have to

consider the prices of various competitive products. He will also have to

consider his production costs.


A producer must also pay attention to likely movements in interest rates. By

complying with market prices and interest rates, the producer is said to be

"in tune" with reality. Whenever he misjudges future prices and interest

rates, he is said to be "out of sync" with market conditions, and he suffers

losses.


A major factor that distorts producers’ judgments regarding the true

conditions of the market is the central bank’s easy monetary policy. This

policy leads to an artificial lowering of interest rates and thereby

falsifies an important market signpost that producers pay attention to.

Consequently, this triggers activities that are out of touch with reality;

an economic "boom" is set in motion.


The central bank’s easy monetary policy causes producers to make business

errors. Once the central bank tightens its monetary stance, however, the

facts of reality are revealed, various activities that sprang up on the back

of previous loose monetary policies are abandoned, and an economic bust

emerges. From this we can infer that a recession is: a process whereby

business errors brought about by past easy monetary policies are revealed

and liquidated once the central bank tightens its monetary stance.


This definition of a recession--a business-error liquidation

process--informs us that the driving force behind boom-bust cycles is

central bank monetary policies.


This definition of a recession embraces not only "ordinary" recessions but

also depressions. The only difference between a recession and a depression

is the extent of business errors. In other words, the longer the boom, all

else equal, the more severe the bust is going to be. Furthermore, the

severity of the slump is affected by the state of the real pool of funding.

A growing pool of funding--savings and capital stored up to make future

production possible--will make the business error adjustment process easy to

handle. Conversely, a stagnant or a declining pool will make the adjustment

process more painful.


While a growing government and hence higher taxes will weaken the real pool

of funding, which in turn will prolong the recession, they don’t of

themselves set in motion boom-bust cycles as such. In order to provide an

explanation of a bust, one must present a theory of a boom. But how can

rises in taxes by themselves explain the phenomenon of a boom, which is

accompanied by a general rise in prices? Without the increase in money

supply, no boom and general rise in prices can emerge. Moreover, if,

according to Wanniski, the Great Depression continued for a decade solely

because of high taxes, then why didn’t we have a permanent depression from

World War Two, since tax rates have been much higher since then?[7]


Obviously, then, if the Fed were to follow the supply-siders’ dollar-gold

rule, it would not eliminate boom-bust cycles. Thus, whenever the price of

gold fell below the nominated $350-an-ounce level, the Fed would pump money

thereby setting in motion an economic boom. Once the price of the yellow

metal rose above the $350 an ounce, the Fed would tighten its stance thereby

setting in motion an economic bust.


Observe that the boom and the bust are set in motion regardless of the

demand for money. Thus when the Fed pumps more money in response to the

lower gold price, the rise in the demand for money cannot neutralize the

effect of the expansion in the money stock. In short, the newly injected

money will always cause damage to the real economy by setting an exchange of

nothing for something, or consumption not supported by production.


Those of the supply-side movement like to project themselves in the image of

free-marketers and in opposition to government interference. Yet their

entire approach runs contrary to the spirit of a free market. In fact, they

are very much like the rest of mainstream economics. While mainstream

economists advocate the management of demand, supply-siders advocate the

management of supply. It is even argued that, in order to promote greater

production, there must be a preference for taxing consumption rather than

production. According to Raymond J Keating, "In addition, supply-side

recognition that supply comes before demand in the economic order leads to a

preference for taxing consumption rather than production."[8]


In the free-market economy, neither demand nor supply is managed. Both

consumption and production are equally important in the fulfillment of

people’s ultimate goal, which is the maintenance of life and well-being. In

short, consumption is dependent on production, while production is dependent

on consumption. The loose monetary policy of the central bank breaks this

unity by creating an environment where it appears that it is possible to

consume without production. This unity can be restored by bringing back the

market-selected money: gold.


Conclusion

The belief that the present unstable financial system can be cured by means

of a monetary policy that targets the price of gold is erroneous. This

framework, which is offered by the supply-side-economics movement, is likely

to further destabilize the economy. What supply-siders are advocating is the

replacement of one form of government monetary control with another form of

control--erroneously believing that their form of money manipulation will

achieve economic prosperity. What is needed, then, is not a reversion to the

bankrupt Bretton Woods system, as is suggested by supply-siders, but a

genuine gold standard where gold is money.

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Mosley on Money and Banking

‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’ Money, p. 5  J. K. Galbraith

Ivo Mosley is serializing a wonderful book on money and banking.  I have been recommending it highly and quoting it so far, but there is one glaring error he is committing.  I hope he repents of it before he publishes.

Here is a sample of what is so good:

The law which authorised the buying and selling of debt was the Promissory Notes Act of 1704.... Many lawyers, including the then Lord Chief Justice Sir John Holt, were against the new development: they considered that a loan of money was a private agreement between two persons, not an asset to be bought and sold. 

His work is rich in digging up bodies buried, history and explanations.

(I had to elide one sentence from that paragraph:

 It was brought in specifically to put the stamp of legitimacy on money created by banks. 

for reasons that will become clear anon.)

Now, note he mentions debt and money.  He shifts from the topic of debt (promissory notes) and the buying and selling thereof, and loans of money in that quote above.  In 1704 no one confused the two, debt and money, or for that matter, credit and money.  The term money is used dozens of ways today, almost always incorrectly, as Galbraith noted.

A loan of money would have been in the form of silver or gold.  In such a case someone might have borrowed an ounce of gold to buy a horse, with a promise to repay he who lent him the ounce of gold.  The horse seller is out of the deal, he got his ounce of gold, and rid of the horse. The horse was security if the borrower failed to repay the ounce of gold to the lender.  On both sides of the transaction there was an asset: an ounce of gold, a horse.

A promissory note is written when one does not have an ounce of gold to buy a horse, but writes a note  to promise to pay at some agreed upon time.  In this case the assets is the horse on one side, and the word of the buyer, or credit, of the other side.   The buyer's promise to pay is now a debt he owes.  The seller extended credit to the buyer, vendor financing, actually a very common event in history.  Indeed, what is sorely left out of all economic discussions is the simple fact the "vendor financing" is the standard normal in history.

Please pause and note this is simple and clear: there is either money and debt, or credit and debt.  All loans are of either form.  There is nothing in finance, high or low, that falls outside of these two categories, and this has been true for the history of mankind, all places, all times.  When pondering economics, hold fast to these two categories, and everything that comes your way will be clear.

There are many problems in discussing economics, and an immediate one in this subsection of economics, loans, is there is private vendor financing, asset-backed, which might be called bene-credit if not at interest (as is usually the case) and then there is this monstrous asset-less loss-socialized bank credit at interest which might be called mal-credit.

Pynchon said something to the effect "... get them to ask the wrong question and the answer does not matter."  As long as people are arguing over what the term money means and no one asks what the term credit means.

Now, having started off succinctly in the above paragraph, note what Mosley does next, in the same paragraph, the salient items in red:

But Parliament consisted of rich men voted in by other rich men, and it overrode the lawyers. The public justification of the parliamentarians was that new credit-money, created by the Bank of England (founded in 1694), was already enabling the King to go off to war: it was a good development, and the law should catch up. The private attraction was that members of Parliament were already using bank-money to get even richer. When other countries saw the power the new law gave to the English government and to English speculators, they passed similar pieces of legislation. Today, we are living with the ever-worsening, and ever more global, consequences of that development. 

See the unwarranted, hybridized terms? Introducing the debatable terms relating to money, when he means credit? From the clear money and credit to "credit-money" and "bank-money (debt-money I suspect he also means)".  I've put them in red in his paragraph to emphasize what is going on.  This is just plain wrong.

Mosley then gets utterly wrong in his attempt to explicate:

First, take public ignorance. Most people don’t understand how banks create money. In fact, it is very simple. When a bank lends, it creates two equal-and-opposite debts (promises to pay money): one from the bank to the borrower, one from the borrower to the bank. The borrower’s debt to the bank is familiar and easy: it stays with him or her (or ‘it’ if the borrower is a corporation) until it’s repaid. The only difficult bit to get one’s head around is: What happens to the debt from the bank to the borrower? Answer: it becomes money.

Banks don't create money, they do not create gold and silver!  That paragraph is incoherent, a complexity contrary to the real world. His paragraph would be splendid if he simply stuck to the proper definition, as I will rewrite:

First, take public ignorance. Most people don’t understand how banks create credit and debt. In fact, it is very simple. When a bank lends, it creates two equal-and-opposite tallies: one from the bank to the borrower, one from the borrower to the bank. The borrower’s debt to the bank is familiar and easy: it stays with him or her (or ‘it’ if the borrower is a corporation) until it’s liquidated. The only difficult bit to get one’s head around is: What happens to the credit from the bank to the borrower? Answer: it becomes a bank asset.

My rewriting is both simple and correct. Mosley is a better thinker, scholar and writer than I am.  But he is making a fundamental error with his maldefinitions.  Is not my reworking of his paragraph not splendidly clear, even revelatory?  Well, Mosley wrote it, I just put in the correct terms where he uses incorrect terms.  (I wonder if I use the rewritten paragraph in my next book it would constitute plagiarism?)

Mosley recognizes something is wrong with his explanation, but he gets the problem wrong, explaining it away by calling it counter-intuitive:

That sounds counter-intuitive: ‘the debt from the bank becomes money’. But it’s the very essence of banking. If I have ‘money in a bank account’, it means simply that the bank owes (promises to pay) me money. The numbers in my bank account indicate how much the bank owes me. If I pay someone, I arrange it so the bank owes the other person some of that money, instead of me. When payment is made, the bank simply moves numbers from my account into the other person’s account. The other person feels paid – they have been paid! That is how banking works – and how it always has worked. Debt owed by a bank circulates among people, and becomes money. ‘We the people’ are happy to use it as money, because it is convenient and because banks have, in the past, put some of their massive profits into making their services cheap to use.

No, not counter-intuitive, just wrong.  But it's good except for the badly used terms, so let me fix this too:

It's simple... If I have ‘tallies in a bank account’, it means simply that the bank keeps track of my putative accumulation of credit. The numbers in my bank account indicate how much the bank says I have in tally. If I pay someone, I arrange it so the bank credits the other person some of that tally, instead of me. When payment is made, the bank simply moves numbers from my account into the other person’s account. The other person feels paid – they have been paid! That is how banking works – and how it always has worked. Credit tallied by a bank circulates among people, and remains credit. ‘We the people’ are happy to use it as money, because it is convenient and because banks have, in the past, put some of their massive profits into making their services cheap to use. 

I left that last reference to money in for the simple reason it is true, people are happy to consider it as "money" (it cannot be used as money,  any more than a bowling ball can be used to play a violin) and in the effort to obfuscate economics, some people have been convinced credit and money are one and the same.  Mosley's point gets to the reality that bad credit can crowd out good money.  Also, Mosley is right this time. if the terms are corrected, that "this is how banking has always worked."

Now, let's move on to the "so what" over banks lending credit.

1. The bank lent you nothing.  You use the credit to build a house.  Bank loans of mal-credit ruin the economy (see below).  You cannot repay the debt.  You lose the house, and owe the net shortage between the amount of credit you borrowed, and for what the asset was liquidated (short sale, foreclosure, etc.).  The bank lost nothing, but gets the house. You still owe the bank a payment from your income stream for the difference.  Heads they win, tails you lose.   Simply can't pay?  It gets worse:  you owe the IRS income tax on the part you cannot pay the bank, since it is imputed income.  That is the law.  Can't pay the IRS?  Then kiss your passport good-bye.  That is the law.  Syrian refugees are better off than American citizens under capitalism.  Syrian refugees can at least escape to anarchy, the free market.

2.  More, from Mosley -

Governments like, and in some cases need, to compete with each other in arms acquisition. Banks happily finance this competition: ... because repayment is guaranteed out of taxes. They are also happy to fund arms manufacture because if demand is guaranteed, a profitable outcome is more likely.
...
Nearer to home, a domestic example: London property. In a rising market, banks happily ... lend: they feel secure that the loan will be repaid. ...rising prices: speculators profit, and everyone else is relatively poorer. So much so, that most young people in London today cannot dream of owning the house in which they live. (My note: same everywhere capitalism rears its ugly head.)
...Booms-and-busts ... legally-authorised, starting with the South Sea and Mississippi Bubbles (both 1720). The pattern has stayed the same ever since. During a boom, ... assets of the majority dwindle in comparison: they cannot afford to consume enough to make existing capital profitable, let alone for the creation of more. Recession follows. The incomes of workers are further eroded by unemployment, as unprofitable businesses collapse. A vicious circle sets in. At this point, the assets of the rich must also shrink if they consist of productive investments: only speculative hot air and puff will produce profits (an example is the London property bubble referred to above). This kind of economic collapse all-too-often leads to totalitarianism and war: the twentieth century provided enough examples of that, for us all to hope that the need for monetary reform will be noticed soon.

Lastly, we might notice the plight of poor nations vulnerable to predators... governments are corrupted, displaced peoples migrate (or attempt to migrate) ... in search of survival. The potential for a fairer, more just and prosperous world is squandered. Much more could be said about this process, so vast and damaging to the human race, and to prospects for our future.

This is quite good, and to make it even better, if you read the original, I elided any time Mosley used the word money.  Heck sake, Mosley could entirely skip the use of the word money, and he'd be a superior expositor! But better he simply use the terms correctly.

When vendor financing is in any way touched by non-market forces (the hegemon), the economy is distorted by misallocation and malinvestment.  Whereas in vendor financing failure to pay results in the lender taking a loss, or getting back the horse he wanted to sell, only the lender takes a loss.  Any risk and loss exposure is limited to the two parties.  We can call this free market phenomena "bene-credit" to distinguish it from the hegemon-backed fraudulent loans which we might call "mal-credit."

Here is another error, which seems inconsequential at first:

This leads to the theme of how the law supports banking. Banking was, and still is, very distinct from money-lending. Banking creates money: money-lenders lend money which already exists. For many centuries, banking was practiced as a series of agreements between consenting adults (so to speak). Those consenting adults were the rich and the powerful: merchants and bankers, monarchs and princes.

Ungh!  Banking was always money-lending.  The work bank (banque) comes from the shelves in a jewelers shop (usually the strongest building in town), where in gold deposits of gold owners were stored. (Banquettes are shelf seating.) Stored gold was noted on a receipt, in essence a warehouse receipt.  If the owner of the gold desired it be lent out as an act of charity, the "banker" would manage the affair. In time some depositors allowed the shop owners to lend the gold at interest (criminal activity - usury) and those deposits, sitting on the shelf, were specially marked for the purpose.  People holding warehouse receipts sometimes would endorse the receipt over to another, and in time this practice morphed into currency, with one note moving from hand to hand and over time creating and extinguishing many debts.  But observe, in every instance, the note is backed by gold.

These bankers then began to put out these notes fraudulently without any gold backing them. Fraud on top of usury! This distorted the market, calling forth goods and services pleasing to fraudsters, to sop up this fraudulent currency, fraudsters whose demands run to the corrupt, whimsical and destructive.  In time, these fraudsters were found out, a run on the bank occurred, and the malefactors were executed.  Now they are bailed out, and the losses are socialized onto those who actually pay taxes from productive pursuits, and their children, unto the third and fourth generation.  This is capitalism.

But since the practice is so powerful, it became state-sponsored, and protected by law.  The state kept the term banking, since it was originally a respectable term, and adopted the process of first writing currency against gold and silver deposits, then at fractional reserve (maybe 10% fraud), and now lending fraudulent notes at near 97% fraud, 3% asset.

I've noticed in my reading of the ancients, how religion and banking were one and the same, or became so.  The word money comes out of Latin, and the Goddess of Memory, Juno, at whose temple gold and silver was stored and money was minted (moneta, mint, money).  What does memory have to do with  money?  Keeping straight who owes what to whom, and who has claim on what money is stored, is critical to commerce and order. Mafiosi and Pilipino bookies rely on memory to keep accounts straight, nothing new.  In time tallies were used, up to this day, now digitally.  In 1836 Parliament was burn down after burning tallies got out of control.  We no longer mention tallies, although they are a critical today as ever.

Judaism and memory (zakar) are inextricably linked. Israel also kept its money, the obligatory payments to the priests, in the Temple, naturally, the most secure place, where people were struck dead by God if they violated the space.  Until recently banks were designed to look like religious buildings, mainline catholic (note the small c) churches, or at least like Roman temples with granite and classical columns.  You still see these all over USA in cities and towns, now used as coffee shops and such.  Since calvinists legitimized usury, now banks look like calvinist churches, ignoring the first act of Jesus after being proclaimed King by the masses was to overthrow the money changers in the Temple.  (I have Vedic scholars keeping an eye out for instances in that milieu.)

Mosley's book will call for a change in the laws, and I hope he agrees with me, the change is to eliminate all banking regulations.  The task is not to tweak at the edges, but to withdraw the support, a complete separation of money, credit, banking and state, as thorough, and for the same reasons, as the separation of church and state.

There will still be people agreeing to both sides of the worst deals, but like gambling debts, when such deals go bad there will be no force of law behind them.  The damage inherent in banking today will be limited to the players, with none of the "privatizing the profits, socializing the losses" we have today.  Our children, and future generations, will have nothing to fear from us.

What do do about the damage done, the 1% who hold 80% of the worlds' wealth?  Nothing.  Within weeks of withdrawing the hegemon's support, the greatest wealth transfer in the history of mankind will begin, as Warren Buffett has to pay out of his own pocket to protect his assets as tallied, and economic squatters and looters take over his assets as assuredly they would when no sheriff evicts a squatter from a home Buffett "owns" but has never seen and can never get around to visiting.  We have this already in law, it is called "adverse possession."  If Buffett himself can show up and sleep there and paint the living room, he can keep it.  If you show up, sleep there and paint it, as long as you make clear it is Buffett's and you taking it contrary to his wishes, then it is yours after ten years.  Buffett has so many houses now, you'd be safe.  So goes the rest of his assets.  And also of all the other 1%.

Minions will object in such a world there would be no wealth.  Well, there would be no wealth defined as personal accumulation.  We'd have wealth defined as an ever-widening range of goods and services, ever more tailored to specific demand, ever more affordable within the personal earnings of an ever widening range of people.  The former is bad wealth, which crowds out the latter, which is good wealth.  The latter is only possible in a free market, capitalism forbids it, and socialism fails to achieve it.

(As an aside, but central to my current investigations, is the central ethical premise that all loans are charitable events, and may never be at interest, at any rate, at any amount, at any length of time whether money or credit is lent.  Loans cannot ever be a business activity.  But set that aside for now.)

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