Toward a New Economic Order
Recent months have seen what is being called "the worst financial crisis since the Great Depression." The pundits have had plenty to write and talk about as they interview officials, consult with "experts," and speculate about causes. Many point to regulatory failures and flawed policies, but virtually none shine the light upon the flawed structures that make up today's global system of money and banking. Is that system out of control and about to breathe its last, or is it being demolished to make way for another that will further enhance the power and wealth of the few?
During the same period, the internet has been abuzz about the elitist plans for the North American Union and the new Amero currency. Now Hal Turner shows a coin which he purports to be an Amero coin issued by the US government. Is it? You decide. In any case, a new currency, like the old, will manifest mainly not as coins or bills but as ledger credits, i.e., the numbers in bank accounts (called "deposits"). Whether or not that coin is authentic, one thing seems certain: the US dollar is headed for oblivion and a new monetary regime is being prepared by the powers that be.
Ben Steil, Director of International Economics at the Council on Foreign Relations, is saying that "globalization and monetary nationalism are a dangerous combination, a cause of financial crises and geopolitical tension. The world needs to abandon unwanted currencies, replacing them with dollars, euros, and multinational currencies as yet unborn." If the CFR is promoting it, you can be sure it's already in the works. While Steil is still talking dollars, and makes no mention of the Amero, the intention is clear -- to have all the countries of the world using but a handful of currencies. It seems reasonable to extrapolate that trend and project it to a time when there will be only a single global currency.
Wars and bank bailouts are being paid for with increasing amounts of "empty dollars." The money supply is being inflated with legalized counterfeit at an unprecedented rate. Besides ballooning budget deficits, there is the chronic trade deficit. The US continues to import more than it exports, relying on foreign governments and central banks to accumulate dollars and to buy U.S. government bonds to finance the deficits. When those foreign buyers decide to stop buying or even slow it down, as many have already announced they will, the Federal Reserve and the banks will buy the bonds (this is called monetizing the debt), flooding the economy with more dollars that bring no additional goods to the market. The buying power of the U.S. dollar must therefore shrink ever more rapidly, not necessarily in relation to other political currencies, like the euro and the pound, which are similarly abused, but in relation to things of real value, like food and energy.
Don't be misled by temporary improvements in the dollar rate on foreign exchange markets or by temporary drops in prices of fuel and real estate from their recent unjustified bubble highs. In the short-run we're likely to see more of such price drops as government and banking policies force workers and small entrepreneurs to bear the burden of their profligate spending and monetary abuses. Price increases may be temporarily held in check by the credit crunch as more businesses fail and more people lose their jobs. It is not the amount of money in the economy that's important. It's the basis upon which it is created and to whom it is allocated. Does it go to producers on the basis of the goods they are delivering to market, or does it go to government on the basis of empty promises (bonds)?
The savings of the middle class, if they are not wiped out, will be worth considerably less than now. Dollar denominated assets, like bank accounts, CD's, and bonds will become increasingly worthless while your debts will remain. The handwriting is on the wall. It's a credit crunch for main street but a lavish abundance of credit for Wall Street and the Military-Industrial-Banking complex. Much higher prices and lower dollar values must eventually follow.
What to do? Don't expect the politicians to do the right thing by denationalizing money and effecting the separation of money and state. But the good news is that the answers can come from free people exercising their rights of contract and association.
The main problems with political money are:
• Legal tender status for FED-created money.
• The monopolization of credit by the banking cartel.
• Lack of an objective, non-political unit of account.
The unit of measure of value and the means of payment are two different things. The former is a measure, like an inch or a pound; the latter, the means of payment, is either a commodity or a credit instrument (an i.o.u.). Free people can voluntarily choose to use their own accounting unit and their own credit instruments (currencies) in dealings among themselves. To measure value and express prices, a particular weight of silver or gold would be better than an undefined, manipulated currency unit (e.g., the dollar).
Historically, the U.S. dollar was both a silver coin and a monetary unit that was originally defined as 371.25 grains of fine silver. The early paper bank notes, denominated in dollar units, promised redemption in silver dollars, thus they were accepted as payment for various goods and services to the extent of the value of the silver promised. When an issuing bank was not known to the seller of goods, or he had doubts about the bank's solvency, its notes could be refused or discounted from face value. When paper notes denominated in dollars were forced to circulate at par, because legal tender laws required it, that standard was obliterated. But a unit based on a specified assortment of basic commodities would be better than a unit based on silver or gold or any other single commodity.
In any case, using a commodity or commodities to define a value measure is quite a different thing from using a commodity as a means of payment. Using a silver or gold unit of account does not mean that payment must be made in silver or gold or that paper notes and ledger credits should be redeemable for silver or gold. Rather, if a dollar is defined as so much silver, and I owe you 100 dollars, that does not necessarily mean that you can demand payment in silver. It just means that I owe you 100 dollars worth (of something), and that worth is determined by the current value of silver relative to all other goods and services. We need not revert to commodity money as a means of payment in order to have an honest money system. Credit money can be perfectly sound if properly issued on the basis of an adequate value foundation, like goods in the shops or on their way to market. But since credit money is an i.o.u., the market must be free to refuse it or discount it. Only the issuer should be compelled to accept his own currency at face value (par) because that is his promise, and his alone. Again, goods and services pay for other goods and service. We just need an honest measure, and the freedom to use it.
The problem then becomes, how do we transcend the barter limitation, i.e., the "double coincidence" of wants or needs? While commodity money can be useful in particular circumstances (it was common in early post-war Europe, to pay with cigarettes, Hershey bars, and nylon stockings), I believe that the more evolved form of credit money is more appropriate to the goals of personal freedom, social justice, peace, harmony, and economic equity. I have no gold or silver. What I do have to offer to the market is goods and services. You, likewise, probably have no gold or silver, but offer other goods and services to the market. Ultimately, we each pay for the things we buy with the things we sell. In other words, goods and services buy other goods and services. It is much more efficient to simply sell to one another on credit, and then spend our credits to requisition whatever we may want from others in the market. The supply of any chosen commodity (like gold or silver) is limited and most of the gold and silver is closely held by those who run the system, the central governments and central banks. They decide the price we must pay for those commodities. But credits can be created as needed at minimal cost so all desirable trades can take place.
To be sure, credit money has been abused. The banking monopoly has perverted it into usury-debt money. The answer is not to discard credit money, but to perfect it through the establishment of mutual credit-clearing networks and independent private and community currencies. This will not only liberate the exchange process but will help to knit a new social fabric to replace that which has been corroded by the dominant system.
It is worthwhile to read the works of E. C. Riegel. His exposition of the nature of money and its workings is masterful. His philosophy was strongly libertarian (with a small "l"), and his proposed solutions are elegant.
The State of the Monetary "Reform" Movement
Money has been a recurrent political issue throughout history, but from World War II on into the 1980s, it became obscured from general public view. The debate, if there was any, shifted away from the proper structuring of money and banking to mere policy issues - how to operate a system that was deemed by its proponents to be "the best of all possible worlds." Even today, the vast majority of people are oblivious to the dysfunctions inherent in the dominant monetary regime and its impact upon their personal fortunes.
Beginning in the nineteen-eighties with the advent of commercial "barter" or trade exchanges, and the emergence from the grassroots of mutual credit associations and local currencies, the money issue once more began to attract attention. From that time until the present, we have seen a rapid proliferation of these systems around the world until they now number in the thousands. There is a growing recognition of systems like LETS (Local Exchange Trading System), Time Dollars, and local currencies. We have also seen a growing wave of activist energy directed toward attempts to reform the dominant national monetary and financial systems, with a particular emphasis on the matter of usury.
While the commercial "barter" exchanges involving business-to-business transactions have had some notable success, the grassroots alternative exchange movement remains fragmented and has yet to make a significant economic impact or to involve more than a handful of individuals. The typical pattern for grassroots-based mutual credit, LETS, and community currency systems is strong initial enthusiasm and rapid growth in participation, followed by a slow decline and volunteer burn-out, followed by the system either going defunct or limping along at a minimal level with little trading and a much diminished participant base.
The pertinent questions it seems to me are:
• What are the main factors responsible for this pattern?
• How can mutual credit and community currency systems be made to sustain themselves, and to thrive beyond the initial spurt of enthusiasm?
• What are the issues that are preventing those seeking monetary reform from working together, and
• How can we build synergy toward empowerment of the people?"
If we can find satisfactory answers to these last two questions, we will, I think, be well on our way toward answering the others.
Here are some of my views on that.
First of all, there are, on the one hand, those who are aiming at monetary reform, while on the other, there are those who are seeking to transcend the dominant structures of money and banking. These two approaches are quite different from one another. The former accepts as given the socio-political foundations of the present regime and does not question its basic assumptions. The latter takes little for granted and seeks to reinvent money and banking to better serve their intended purposes; it is a more thoroughgoing, more "radical," approach that begins with a particular set of principles and ideals.
Most of the reform attempts, for example, accept the dogma of statism as the dominant "religion," and believe the fallacy that the money power should rest solely in the hands of the state. A few would admit the possibility of supplementing state (or central bank) money with local community currencies, but fail to see the deeper implications. As Ulrich von Beckerath says, "extension of exchange transactions without State money is in reality the beginning of a new system of settling accounts, indeed the beginning of a new economic order."
I do not raise this point to further divide the "reformers" from the "transformers," but to show how they might be brought into alignment toward a common goal. If the fundamental goal is "empowerment of the people," then action needs to be taken on every level, and every opportunity must be exploited. If we can find a way to ramp-up the pressure toward empowerment, then it will ooze into every available nook and cranny and expand into every opportunity that presents itself. Sometimes it may look like a step toward reform, and sometimes it will be a new, complementary approach to mediating exchange.
There are many of us who have become aware that solving the money problem is fundamental to solving the other critical problems facing civilization, and have made it the central focus of our energies. I believe that those of us who are serious about making a contribution to solving it must first educate ourselves, learning everything we can about the principles of exchange and finance.
As a comparison, we might ask, why were the Wright brothers successful in achieving manned powered flight when so many others had failed? It seems clear to me that it is because their approach was systematic and scientific. They learned all the could about the principles of flight by reading what others had already learned, by observing the phenomenon of flight in nature, and by experimenting with different possibilities that presented themselves.
We must do the same. It is important to study both the history of money and the theory of money, to observe how things work in nature, to study the systems that already exist, and to design our experiments to be unambiguous in their answers. What has and has not worked in the past? Who has proposed promising solutions that have not yet been adequately tested or demonstrated? How, where, and under what circumstances, can those proposed solutions be adapted to today's situation?
My own inclination is toward "freedom approaches," with a particular focus on what can be done by associations of businesses, by grassroots organizations, and even by municipal and provincial governments. I do not wish to shift control of the money monopoly from one group to another; I seek ways to transcend it. Thanks to some very brilliant thinkers who have preceded us, we now have an adequate understanding of the principles needed to design exchange mechanisms that are sound, effective, and economical, but more importantly, honest, fair, and empowering. And, thanks to the new computerized telecommunications technologies, we have the necessary tools and infrastructure to easily implement them.
If the various approaches to solving the money problem are to be harmonized toward a common goal, we must at least have a common understanding about what money is. Based on almost 30 years of intensive research, it has become clear to me that money has evolved through several different stages. We must make a clear distinction among the different kinds of money that have been used, and understand the characteristics and limitations of each.
Everyone needs to understand the progression in the chain of evolution of the reciprocal exchange process. It has evolved from simple barter, to commodity money, to symbolic money, to credit money, to credit clearing. While all of these forms are called "money," they are each distinctly different "animals" with distinctly different characteristics. Commodity money, like gold and silver coins, while it may offer a partial solution when things become chaotic, remains a primitive medium of exchange. It can serve as a store-of-value, is useful for impersonal exchange transactions, and provides portability of wealth. But ultimately, our best security is in our relationships with each other. Mutual credit clearing will ultimately provide a much more economical, efficient and effective mechanism for exchange. This requires a high level of organization and a business-like approach to operations. It also means that the clearing debits against credits (purchases against sales) need not be limited to small local circles, but these can proliferate and combine into a federation that can span the globe.
The website Reinventing Money, dedicated to promoting freedom approaches to solving the money problem, has been compiling and making accessible the most insightful and promising materials available. For those who really want to understand money and banking I particularly recommend the writings of E. C. Riegel, Heinrich Rittershausen, and Ulrich von Beckerath. There is enough there to keep a graduate student busy for quite a long time but a good start can be made with Riegel's Flight From Inflation, and Beckerath's The Practical Realization of the Milhaud Proposals. Just these two will provide a better education in money and banking than can be had at any university. That site is also home to much of my own writing on the subject. My most current works can be seen at my blog, beyondmoney.net.
Image by gothick_matt, courtesy of Creative Commons license.