Money System Reform

[glenis]

I’d like to start this thread to discuss the money system

I hear phrases like “we have too much debt and not enough money”.

The word “money” is used in phrases like this as if ‘money’ was a dinar in a Roman’s purse, or a Shekel in a Venetian’s purse.
Modern money is actually an accountancy entry – it’s a piece of bookkeeping. In bookkeeping every debit has a credit. The word ‘debt’ means one side a of a bookkeeping entry, the other side of this entry is a ‘credit’ – what people call ‘money’. There is actually no money in anyone’s bank account that is not a debt somewhere else. So as things stand if you want less debt then you need to have less money if you want more money then you’ll need more debt.

The crucial phrase in this is “as things stand” – the ‘financial system’ the ‘money system’ is not natural – it’s no more natural or God-given that the rules of a game of chess – it’s made up ! – and hence can be changed.

So the two things I want to discuss on this thread are
a) How the money system really works and where it’s fault lines really are – so complaints against it are put correctly and so if you start to think about new rules for a new system you will be trying to solve real problems.
b) I have suggestions for amending certain of the rules that I think will fix the situation and I’d value feed back and discussion on them.

I’m going to start with the ‘Circular flow of money’ – What this means is that “Butchers buy from Bakers who by from Butchers” – half the theories of economists are based on this idea. Well in reality there is no circular flow of money – it does not ‘go round’. Money is “universally transferable bank debt” and as such it starts of life as a bank loan say to a farmer who uses it to pay the wages of farm workers. The wages paid get added to the price of the farm produce he sells to butchers and bakers on credit. When the Farm workers buy their food from the Butcher and Baker the Butcher and baker use that money to pay off their farm bill, the farmer uses the money to pay off the loan and at that point the money ceases to exist.
Now some people who complain about the money system complain that the fault line is here - when the bank makes money out of nothing when they create the loan. And that money should be ‘real money’ Gold/ Silver or Gold backed or Silver backed ‘sound’ money, ‘moral money’ ‘just money’…. For my money they may as well take some other human virtues like being pretty and demand that money have these qualities as well. Imagine that all money had to be gold ? Imagine you had farmers willing to farm, butchers will to be butchers, customers wanting the produce and some ‘alternative’ financier saying ‘No’ you can’t do this – you’ll have to starve as I’m short of those yellow bricks in my safe – go invade the Aztecs first, or evaporate a few trillion tones of sea water – then you can have a sausage.

The above paragraph I’ve shown that standard economics is wrong – ‘the circular flow of money’ and I’ve shown where the Ron Paul-esque money reformers are wrong in their demand for ‘sound money’
Where I see the problem (one of them) in the above is that the numbers – the basics maths does not add up :
If the Farmer took a loan for £50 and paid this in wages to farm workers then sold it on credit to the butchers and bakers for Cost £50 + profit £1 = £51 then the butchers and bakers – tried to sell the produce for Cost £51 + Profit £1 = £52 – as there is only £50 in customer's bank accounts then there is not enough money to buy the all the goods in the shops – you have an instant depression ! In order to ‘keep going’ people will have to do ‘other things’ to get hold of the extra money - the extra numbers. It is my contention that these ‘other things’ that we don’t need to do for their own sake but just in order to get the extra numbers to buy a sausage are the cause of our problems – it’s the modern version of sailing to the Aztecs to get a yellow rocks so that a Spanish man could buy a chorizo from a shop that was full of chorizos before he left in the middle ages - and we laugh at them but effectivley we do the same thing.

[cafetimes1991]

This website has some great info: http://www.revelationaudiovisual.com/

[los_nomo]

Basically there are several types of money. First but very crude is barter.... I have something you need and you have something I want. We trade items that both fulfill each others needs. i. e. I have a car and you have a watch, we trade and both are happy. At least we are happy at first, until one person who had the car or watch needs the car or watch back, then we have war and bloodshed. Money progressed to fix this inequity of exchange. Salt, gold and silver etc... were used to help place an actual value on things so that a person most likely wouldn't trade a watch worth little gold for a car worth a lot of gold. This meant that a person didn't have to trade actual necessities to get what is needed and could accumulate wealth. The next problem was that it was easier for robbers to take the gold or silver or salt, so the bank was created to ensure the safety of the money. Instead of walking around with heavy gold or silver, people started to trade the paper receipts and never bothered with checking to see if there was even gold or silver to back up the receipt. Before you knew it a little trick happened. There were more paper receipts than there was gold in the bank. It’s okay because no one cared anyway until someone actually looked and then everyone came rushing back at the same time for the gold and silver as stated on the receipt. The bank simply locked the doors and waited for everyone to go home, but the next day the bankers were burned at the stake. Then it dawned on the bankers to align themselves with the security and military might of the government. They had something more than gold now. They could simply pass laws and force the people to accept their paper backed by nothing, because they didn’t have to worry about a run on the bank. Because of laws passed they could still say that the money was backed by gold or silver even though there wasn’t enough gold or silver to go around (fractional banking system). But then came the day that there was no denying that there was not one speck of gold and silver and now it just says that “This note is legal tender for all debts, public or private”. Really this is just fine and dandy if the money was given by the government and bankers debt free, but it is not. The government writes IOU’s called treasury bonds and gives them to the bankers (Federal Reserve). In return the “Fed” creates the money out of thin air called fiat money. Now a days its digits on a computer transferred directly to the government's account. Now, the Fed charges interest on that money. We pay the interest through taxation call the federal income tax. The major problem with this is the “Interest” is never created, therefore the debt can never be paid off because there is never enough money to pay the debt and the interest at the same time without borrowing more money from the Fed. Now the same goes for buying houses, credit cards and anything else which causes a debt to occur. The money supply seams to increase and therefore people before you can afford to pay their debts plus interest and you are dependent on others to borrow money to pay of your debts plus interest. Consumer confidence is talked about a lot. This is to say the more people are confident about their future employment the more they will borrow. If people loose interest in borrowing the giant scheme collapses because no one can come close to paying for the interest that is accruing daily. Awash in debt people start to sell off at fantastic discounts their REAL wealth such as businesses, houses, cars and jewelry or simply loose it all to the bank and commit suicide or something. So you see make sure that you pay attention to consumer confidence. If that goes south watch out.

[Ratiocinator]

The recent Abolish Money thread:

http://www.davidicke.com/forum/showthread.php?t=46889

[thunda]

The unfortunate fact is that the current money system is the best of a bad bunch. There are a limited amount of resources in the world - whatever resource you wish to add value to (all?) - yet there is a constant increase in the population .. so, to the economist .. there needs to be a constant increase in the wealth available to spread around.

If we all had, for example, 100 gold coins in our pockets .. thats good .. we could all go out and exchange those coins for products or services. But what happens when the population of the world increases by 1 million .. 5 million .. or 10 million or 1 billion?

Where does the extra gold come from to give that 1, 5 or 10 million people their fair share of 100 gold that everyone else has? Its not there .. Our entire existence will eventually become a case of constantly searching for gold streams to make sure people had enough gold in their pocket.

The solution - to the econmist - is to "magic up" wealth and create it out of thin air so that we can distribute what we want, when we want and to who we want so everyone has at least something to live with.

In truth - there is nothng fundamentally wrong with this system at its core. We aren't held enslaved to some "galactic bank" which is telling us what we can do and can't do or how we distribute whatever made up items of value. Gold is only valuable because somebody decided it was - just like paper money or debt.

Where the problem lies with the system is corruption / greed, how its distibuted and how money is used as a social control mechanism.

Somebody will always want more than their neighbour and will twiddle ways to bring it to them. Greed and corruption.

The systems flaw is the more money you have the more money you can make - not just through interest - but one of the biggest issues facing someone wanting to start a profitable business is lack of funds initially. As a result - the money tends to get shuffled to those who already have it and don't really need any more - whilst those who lack money, get less. Distribution flaw.

When someone doesn't have money - they can be made to jump through hoops to earn what they need to live the life they want to live. So people get abused for pennies .. people need to fit into a society which perhaps goes against their own morals just so they can put a roof over their head or feed their family. Social Control.

Money - in whatever form you have it - isn't an evil like the old saying goes. Its those 3 things that are the evil and each of those are based purely in Human Kinds hands and its up to us to decide whether we want to continue like that. Whatever we chose - money (of some kind) will still be there - its how we chose to use that money that will matter.

[glenis]

Wow thanks for such quick and detailed responses :

Los Nomo wrote "They could simply pass laws and force the people to accept their paper backed by nothing,"

Thunda wrote : "The solution - to the economist - is to "magic up" wealth and create it out of thin air."

These are quite a standard critiques of the money system - my contention is the fiddle isn't a money system in which - "the paper is backed by nothing" and there is "magic-ed up wealth" - it was the Gold that was the fiddle ! - With a shop full of chorizos why should a Spanish bloke have to go on a ship to South America to get a yellow brick to buy a 15th Century Sausage back home ?

Magic-ing numbers out of thin air - if it's backed by producers ability to produce and consumers desire to consume - is not magic at all it's sensible bookkeeping and accountancy.
The solution to the problems we face is not to go backward towards a more ‘real’ - a more gold based - money system but to move forward and to remove from the system we have the legacies of the old artificial constraints that are still inherent in it.

Back in the Gold days they said basically “If merchant A wanted to trade X goods with Merchant B for his Y goods then that will not happen if there was not enough gold – so a totally artificial constraint was applied to the economy.

The artificial constraint we have now-a-days is “work”. The artificial out-dated rule we have is that you need to work to get money to consume. Yet the reality of the situation is that the shops are full with what’s left of our factories at half speed and they tell us we need to produce more “get a job” in order to consume what is available already.
The financial system never quite caught up with the concept of machines and now it’s on it’s last feet as it doesn’t stand a chance with computers and computer automated production. The basic facts are that we only need about 1% of the world’s population to be in full time employment to produce everything we need and want. It’s the attempt to squash that reality into a money system designed in the pre-industrial age based on what was then a passably plausible contention that “if you didn’t work you couldn’t eat” – this has been out of date since the industrial revolution. It is this that is one of the major fault lines of the present money system.

Thunda reckons that “The unfortunate fact is that the current money system is the best of a bad bunch”… well that was until now ! – I set up a web site with a suggested solution that address’s the maths problem of the present system I mentioned in my first post and the one mentioned here: www.worldnews.blog-city.com The solution I’ve called NEFS – it’s got a spreadsheet with you can play around with so you can see what it does and it helps to explain the mess we are in at the moment. “…the best of a bad bunch” is just not good enough.
Have a mosey at it. I’d appreciate your feedback
Thanks
Glenis