Jasper's Box

Salmoney

2006-12-15T17:11:00.001-08:00

Salmoney.......

Salmoney, the Simultaneous Solution

A Simple Model

The task at hand is to create a monetary mechanism which incorporates 100% Money, a Deteriorating Currency, and a Universal Basic Income. I will deal with the Unitary Tax a bit later. Let’s begin by imagining a group of 1,000 people who have moved to a deserted island and have decided to create a monetary system. They decide to name their currency the Frank. Each person will receive a daily allotment of 100 Franks. This is 100,000 Franks a day in total. The various people have brought with them goods, canned foods, clothing, and bottled water. In addition, the island has abundant freely growing fruit, and game animals of various sorts. A market is set up in a central location and money trade begins immediately. Some people go gathering and hunting, some begin to build shelters, others start to clear land to plant crops, some study and explore, and others idle away their time.

The first day is all about equality, but it is an equality that is short lived. Two things begin to operate immediately to disrupt that equality. They are the differences in existing stocks of stored food and clothes and tools, and the other is the level and efficaciousness of their effort in increasing the stock of goods. The end of day finds 500 of the people with no money left, the next 400 have an average of 50 Franks left, and the top hundred have an average of 800 Franks each.

The second day brought another 100,000 Franks and the process of accumulation continued. Prices took a sharp rise. Some rose greatly, more than the doubling of the money supply, some kept an exact pace, doubling from the day before, and some lagged behind. Goods began a qualitative separation, with the highest quality leading the increases, and the lowest quality rising the least. Those who held no money suffered no loss on savings; they did see the effectiveness of the daily allotment diminish. While on the first day they received an equal share of all the money, on the second day an equal share of half the money, etc.

The richest among the group were already carping that inflation was destroying the purchasing power of their savings, and the poorest that the purchasing power of the daily allotment was eroding. These arguments continued forever, but the problems actually began to diminish, at least on the side of the wealthiest. While the value of their savings was diminished daily, their incomes rose proportionally, and they received the daily allotment. After thirty days, the mean loss of purchasing power was about 3% a day, after a hundred days about 1% a day, at the end of a year the loss of purchasing power on each Frank averaged a little more than a quarter of a percent a day, but with their increased incomes and the daily allotment they were maintaining their capital easily.

The end of the first year saw a total of 36,500,000 Franks in circulation. The bottom four hundred held no money. The next four hundred held 10,000 Franks on average, 4,000,000 Franks in all. The next hundred and fifty held 30,000 franks each on average, or 4,500,000 Franks in all. The top fifty held 28,000,000 Franks in all, or an average of 560,000 per person.

Some argued that the daily allotment should be increased, because it no longer provided enough for the poorest in the community to live a decent life. Some argued that the increase should be large, others that the increase should be small, others that it should continue to decrease, others that it should be stopped altogether because they had all the money they needed, and the money just encouraged laziness.

The arguments were as follows.

1. Money to be held constant at 36,500,000 Franks with no further allotment (Fisher, Soddy, Del Mar), except to keep prices constant.

2. The allotment to be held constant until day 10,000 and then allowed to rise at the rate of one ten thousandth each day (Milton Friedman, 4% per annum), money should have 100% reserves, and grow at 4% per year.

3. The allotment to be held constant until day 3,000 and then allowed to rise at the rate of one three thousandth each day (Silvio Gesell, 1% per month), Gesell would require a one percent stamp per month, which would be equal to about the diminution after 3,000 days of equal Daily Breads.

The allotment to be held constant at the same rate for one year, and then on day 366 be allowed to rise at the rate of one three hundred and sixty fifth each day. (Salmon Fortunatus Aquarius, Solar Cycle, 100% per year)

5. The allotment to be raised to the level that it held at the end of day thirty, and then allowed to rise at the rate of one thirtieth a day. (Lunar Cycle, 100% per month)

Inflation in the General Interest

Salmoney introduces the concept of inflation in the general interest. This uses the power of money to assimilate and articulate significant amounts of new money, a power used for years for private interests. By doing this for the general public rather than private business concerns, something quite unique occurs. When everyone in the economy is given an equal amount of money, it has the statistical effect of making everyone closer. The pecking order is unaffected, but statistically the income distribution is compressed. This compression counters the tendencies of the free market to widen the disparities in incomes and assets.

Inflation in the general interest distributes new money that derives its purchasing power from the diminution of all other monetary divisions. It puts the storage of purchasing power on a twin track, one private, and the other communal. The amount of purchasing power taxed away from existing cash is immediately distributed to everyone equally. The average person receives exactly what he loses.

Inflation in the general interest is an adaptation of Gesell’s invention of Stamp Scrip. Instead of taxing money through an explicit affixable stamp, money is taxed implicitly through diminution. Each new currency division created taxes every other division already in circulation. It gives money a half-life, the other half is shared equally by humanity at large.

V. The Bank of Fortunatus. Daily Bread and the Trued Price

I trued my first bicycle wheel in the summer of 1984. It was at the Portland Bicycle Collective in southeast Portland. The spokes connected to the center of the rim in a fairly straight line, but alternated the connection to the hub between left and right. Each spoke had an adjustable nut-bolt that could compress or lengthen depending on which way one turned. There was a brace to grip the wheel by the prongs of the axle that extended from the hub, allowing the wheel to spin freely in a highly stable manner. A reference pointer is suspended next to rim of the wheel. When the wheel is spun slowly, the reference point allows one to see if the wheel is out of round, or is bent to the left or right. When one has finished the analysis, the Trueing can begin. If there is a bulge in your tire rim, it must be pulled in, but in order to pull in, you always end up pulling sideways as well, because the spokes are not on the center of the hub. This means that to adjust the rim of the wheel in or out requires right or left compensation. To adjust the wheel to the left or right requires an in or out compensation.(Like the ups and downs of the business cycles, and the left and right of politics.) If the adjustments are not based on accurate readings of the reference point, or the adjustments are too great, or too small, or on the wrong spoke, the wheel will continue to wobble and eventually collapse.

The bank of Fortunatus will issue a form of Salmoney that I have termed Excalibrator. We will begin where the simple model ends, at the end of one year. Everyone has received exactly the same Daily Bread for each and every day. Some have a lot, some have many, some few, and some have none. One year’s issuance of equal Daily Breads establishes the capital component of Excalibrator. At this point the Daily Bread begins to grow at the same rate as the capital component and thus establish the system shape and mechanism. Each will grow at 1/365^th daily, establishing the system constant,

Population x Daily Bread x 365 = Capital Component.

While the number of currency divisions for a given Daily Bread increase daily, the proportion of the Daily Bread to the total sum of currency divisions is constant. Two DBs will be the same proportion of all money, always.

This rate, 1/365 per day, was chosen to achieve a daily rate for doubling money each year, but when it is compounded daily it approaches the transcendental number e,

(1 + 1/365) raised to the 365^th power = 2.714

All existing monetary divisions are diminished by 1/365 each day, which means that 364/365 of the purchasing power of existing monetary divisions are maintained. The communal stream of purchasing power completely compensates any holder of cash up to 365 DBs through their receipt of their own single DB. The amount of currency divisions will double about every eight months, giving Excalibrator a half-life of eight months. This means that each person will have received an equal share of half the money in circulation within the past eight months.

Using Daily Bread as the price referent requires a daily adjustment in the nominal price. It grows at a little more than ¼ of one percent a day. Using the 100 Franks a day figure from our simple model the Daily Bread would rise to 100.27 Franks on day 366, 100.54 Franks on day two, 100.82 Franks on day three, 200 Franks a day on about day 240, and 271.4 franks on day 731, the first day of the third year. After about eight years it would be about 100,000 franks a day.

To avoid dealing with large numbers the currency divisions will be retired at regular intervals, folded into other currency divisions stair stepped up at multiples of 1000. For instance 1,000 Rubles would be equal to 1 Frank. 1000 Franks would be equal to 1 Real, which would be equal to 1/1000 of a Mark ad infinitum. This is Shepard Tone Money. A Constantly Rising Scale, that stays in the same place. The DB on day 366 is 100 Franks, 270 Rubles. On day two, 100 Franks, 540 Rubles. At around eight years it would be 100 Reals.

All purchases would still be subject to a negotiated price, with sellers seeking a higher amount and buyers a lower amount. Just because something is listed at a price doesn’t mean that someone else will buy it, but when any transaction is made in money it will yield a figure that can be stated in DBs for that day.

The Daily Bread (DB) is a ceterus paribus price. If all other economic conditions and relations remained unchanged then prices would rise in exact proportion to the rise in the quantity of money. This does not mean that prices will stay the same, they will not, but having the datum of a DB price, one can judge money against itself. Ceterus Paribus is transformed from assumption to parameter, parameter of the existential referent of price. One can see the relative value of all commodities to money, even money.

Excalibrator is organically progressive in its effect and its cost. The significance of an equal benefit increases as one descends the economic ladder. The significance of cost increases as one ascends.

Excalibrator will generate a measure of price, the Daily Bread (DB), which is both a true price and a trued price. A true price in that it will refer not only to an amount of cash at a point in time, but refer as well to the fraction of the total amount of money in circulation at that point in time. A trued price in that it will generate a constant compression pulse that will compensate for and interact with the tendency toward separation inherent in the operating of the free market.

Increasing the bidding power 1/365 in any auction will not disrupt it, especially if all bidders are given an equal share of the increase. Markets will be stepped up and allowed a better chance to clear. The effect of the pulse of equally issued devices of purchase will make everybody economic voters, shapers of the econosphere. The Daily Bread measure creates a nominal inflationary spiral, but an effective inflationary helix, the trued price.

Capital Component = 365 x population x Daily Bread

And as the Daily Bread is a constant ratio of the capital component it also grows at 1/365 per day:

Daily Bread = 1/365 x Capital Component/Population = Trued Price

Excalibrator.......

The Quest

Salmoney is a monetary system with a built in universal human subsidy as its foundation. Excalibrator is a specific form of Salmoney.

The purpose of Excalibrator is to put a functioning currency into the hands of any group of people in the world. Be you a city, a province, a nation, a co-op, a fraternal or religious organization, you will be able to create and sustain a market for the monetary exchange of the products and services of all the people in your group. Excalibrator was achieved through a Grail Quest. It is my sincere hope that the currency created will put the power of Arthur's Sword into the hand of each and every one of my sisters and brothers on this fair world.

Excalibrator will:

Establish an equal, universal human subsidy.

Contain and enhance competition by counterbalancing the market trend to take from the weak and give to the strong.

Measure price precisely and deliberately by establishing a transparent and definite amount of money.

Provide equal access to money by issuing all money through the population at large and making all other forms of issue unacceptable.

Not change the relative position of anyone in the pecking order of the free market.

Not use a confiscatory tax.

Finance these measures through a constant and transparent diminution of the currency.

Create a community of interest in the success of your neighbors.

Base its value on the full productive capacity of humankind

The Design

1. Create and issue daily an amount of money equal to 1/365th of all the money already in circulation. This can be printed money or journal entries, or computer bytes. Give each currency division a unique and public identification code.

2. Divide and distribute it equally to all people. Give them currency, or credit their accounts. This amount is the Daily Bread (DB), an amount that every person in the economy will have a direct relation to every day, because they will receive it.

3. Eliminate the rights of all other entities to create money. Do not accept money created through fractional reserve credit. People may loan only their own money that actually exists.

4. Quote prices in Daily Breads, DB's. The amount of money increases at the rate of 1/365th a day, so does the Daily Bread. Stores would quote their prices in Daily Breads (DB's). For instance, a jacket might have the price of 2 DB's. If the DB is $100 dollars, the price of the jacket, would be $200. The next day, with the same price listed on the jacket 2 DB's, the customer would pay $200.46, or 1/365th greater than the previous day. In eight months the price listed on the coat would still read 2 DB's but the coat would cost $400 (or four reales, see below)

5. To avoid dealing with large raw numbers, introduce a series of currencies each one thousand times more valuable than the last. Daily Bread would begin in America with dollars. Calling the next currency division Reales, 1000 dollars would equal one Real. 1000 Reales would equal one dinar. 1000 dinars would equal one shekel etc. ad infinitum. The largest note would be 500 currency divisions. Excalibrator will have a half life of eight months and a shelf life of about 14 years. It would then be converted to a denomination two places down the chart, at a rate of one million to one. Shepard Tone Money (see below)

The Rationale

Daily Bread is a measure of the real price. It is a simultaneously related to the total volume of money, and a specific currency division. It changes at a constant rate. 1/365 per day, essentially the base of the natural logarithm e on a yearly basis. This is the constant (K) in the system. A printed conversion chart, which could be for a large number of years, or a simple cash register program makes the daily adjustment. Unlike the tremendously flawed notion of a Consumer Price Index (in essence an index of an index) with all of its inherent problems, the DB is a transparent representation of both the macro and micro functions of money. It yields information of a precise and fundamental nature to individuals and the economy at large as to what is truly going on with money.

Daily Bread is a social dividend. Each person receives a daily allocation. This serves a reciprocal distributive function to counteract the redistributive function of the market, insuring that the return on the cultural heritage and the increment of association yields to the general public. It serves the function of welfare, old age pensions, life insurance, disability insurance, child support, educational aid, flood insurance, famine relief, unemployment, help for the working poor, and any number of other programs too numerous to mention, without the need for a bureaucracy to screen for eligibility. It is Wieser's paradoxical well.

Daily Bread is 100% Money. That is no person or group may publicly or secretly create other money. This does not mean that money may not be loaned, indeed I foresee for the first time ever a real, non-political market for money. The improved informative value of the DB will allow lenders and borrowers to ascertain in a precise manner what the real rate of return of money is. But banks may no longer create money out of thin air to loan to customers, and essentially shape the economy. The general population, and only the general population should possess that right.

Daily Bread is a currency that deteriorates over time. But instead of using Gesell's notion of Stamp Scrip, which requires a periodic fee in order to maintain the value of a piece of currency, the currency deteriorates through diminution. It yields an inflation rate of approximately 178% per annum on the currency divisions, but this inflation is folded back into circulation. This gives the created notes (be they paper or electronic) a half life of eight months. Unlike every other inflation that has ever occurred this one is done in the real, direct, unmediated interest of the public at large.

The notion of the ascending/constant scale currencies has two sources. I was in Mexico in January of 1993 when they hacked three zeros off their money and everybody went on about their business as usual. Never a better illustration that one aspect of money is truly just numbers. Their second is Shepard Tones. A Shepard tone is a rising scale that begins a two octave ascent softly, is played more loudly in the middle and then fades out at the top. It is followed by another scale an octave lower, and a measure behind, that does the same thing. It gives the impression of a constantly rising scale but it stays in the same place. They are the creation of psychologist Roger Shepard. I found them in Godel, Escher, Bach, many thanks to Douglas Hofstedter.

Notes

I recommend Daily Bread for every country and people of earth. Japan and Bangladesh would both benefit. Government debt and currency speculation would no longer be useful, though I cannot completely predict their demise. It may be created from the top down or the bottom up, the effect will be the same. Any group any where can begin their own. Currencies will eventually blend together. Different localities could create Salmonies with different rates of diminution. I chose the 1/365 a day rate for aesthetic and personal reasons. I find logarithms one of mathematics most elegant creations, and their inventor John Napier to be one of mathematics true geniuses. I credit Von Neuman and Kazner in Mathematics and the Imagination for first making me aware of its formulation. It is the 100% interest, compound continuously, or in this case (1 + 1/365) raised to the 365th power.

The Juarez Plan

The Juarez Plan is Named for Benito Juarez, President of Mexico, who defied the international banks in the 1860's. He led one of history's only successful wars against their power. Mr. Juarez was also born near Monte Alban.

Jubilee Plus

There is a movement afoot, Jubilee 2000,

that would partially resurrect the Mosaic stricture of Jubilee and forgive much of third world government debt in the year 2000. I sympathize heartily with their efforts, I simply believe a fuller application, even extension of the concept would be more beneficial.

I propose that on March 21, 1999 (Benito Juarez's Birthday), or on any day thereafter, the following steps be taken.

Step One: Convert all government debt to the National Currency of the debtor nation at market rates, as of March 21, 1999.

Step Two: The Treasuries of the Various Nations issue an amount of currency equal to the amount owed, and then discharge those debts.

Step Three: The Treasuries of the Various Nations issue an amount of currency equal to the amount issued to pay debts, and divide this equally among the populace.

Step Four: The banks of the world will become banks of exchange, their functions limited to safeguarding accounts and clearing transfers. They must divest themselves of all other functions.

The Plan Will:

Eliminate the debt of every nation on earth

Provide Liquidity to replace bank credit

Create a monetary cocoon for people to survive the transition

Provide the perfect platform for the launching of Excalibrato

Economic Heretics

2006-12-15T17:09:00.000-08:00

Economic Heretics

are those people who have challenged the fundamental assumptions of money.

Proposed Solutions to Money’s Problems

There has been no shortage of monetary critics over the last two centuries and they have done much to identify the various problems and propose solution. They have included some of the most respected economists of their day and our own, as well as a host of others from outside the field. Their notions taken as a whole offer a comprehensive view of money’s flaws and strengths and form the basis of my offering to follow.

Solution One: 100% Money

The concept of 100% money is a fairly simple notion. It would prohibit all private parties from the practice of creating money. The 100% refers to the 100% reserve requirement that it would impose on all demand deposits in banks, i.e. the banks could not loan money that they did not possess. No one could receive money from a bank unless someone else actually gave up use and control of that money. This right of money creation, is and should be, the sole prerogative of the government, in the general interest. The concept was fully elucidated by many economists, some of who follow.

Alexander Del Mar anticipated the concept of 100% money with his basic principle that the unit of money is all such money. He wrote in the mid to late nineteenth century and was active in the Free Silver movement. A monetary historian and theoretician he wrote many books, the most pertinent here being “The Science of Money”. Money is a tool designed to measure value with precision. Money must be clearly defined and completely transparent and not subject to manipulation by any private parties.

Frederick Soddy, Nobel Prize winner in Chemistry, set his sights on money in the mid 1920’s. He was so incensed at the structure of the money mechanism that he began a whole new career as an economic critic. He believed that the system of fractional reserve banking was tantamount to legal counterfeit. He at one time advocated jailing the directors of the Bank of England. His notions informed and inspired the Chicago School’s proposals for banking reform in the early thirties.

Frank Knight of the University of Chicago wrote in a review of Soddy’s monetary critique,

“The practical thesis of the book is distinctly unorthodox, but is in our opinion both highly significant and theoretically correct. In the abstract it is absurd and monstrous for society to pay the commercial banking system ‘interest’ for multiplying several fold the quantity of medium of exchange when (a) a public agency could do it at a negligible cost, (b) there is no sense in having it done at all, since the effect is simply to raise the price level, and (c) important evils result, notably the frightful instability of the whole economic system and its periodical collapse in crises.”

Soddy saw the problem as a conflict between real wealth, actual goods and services, and virtual wealth, the monetary structure that poorly mirrored it. He supported 100% reserve requirements, and the reservation to government alone the power to create money.

Irving Fisher, Yale mathematician and economist, became the most prominent economist of his era to promote the notion of 100% Money. He dedicated the last thirty years of his life to proposal, at the cost of his own personal and professional reputation. Fisher took up the crusade after loosing a personal fortune in the stock market crash of 1929. Fisher, noted mathematical economist and monetarist, was determined to find and correct the flaw in money that created the periodic collapses that plagued mankind.

The conservative Chicago School and its principal modern representative, Milton Friedman, have been amongst the supporters of the 100% reserve requirement proposal. Ronnie J. Philips in his book “The Chicago Plan & New Deal Banking Reform” cites four prominent economists, Frank Knight, Henry Simons, Jacob Viner, and Lloyd Mints, founders of the Chicago School, who were strongly committed to the concept of laissez-faire in the industrial sphere, who did not extend this doctrinaire stance to the arena of money creation. Through their policy proposals they demonstrated an acceptance of the notion that money creation was the natural monopoly of the federal government. Early in the Franklin Roosevelt administration they proposed a 100% reserve plan, which was not enacted. They called for the complete nationalization of the Federal Reserve, the establishment of Federal Reserve Notes as legal tender, and a 100% reserve requirement on demand deposits. They would effect a split in banking functions, leaving money creation in the hands of federal government for the general interest, and the credit function to be administered through a structure of savings investment trusts. This split has become known as Narrow Banking.

Milton Friedman still claims to support the idea of 100% reserves, but says the other extreme, 0%, would be acceptable as well, allowing banking to be open to all. Caveat Emptor indeed.

Maurice Allais, French economist and physicist, adopted monetary criticism from his efforts to systematically look at the economic histories of the world’s civilizations. He was attempting to draw some general conclusions about what types of economic policies produced what types of society. As one can see in his previous quotes, he felt that society’s definition and structure of money to be among its most important and decisive factors in the type society that developed. He understood that reform limited to currency was doomed to failure unless it included not just demand deposits but other media of exchange that rose up to challenge the government’s monopoly on the creation of money.

Perhaps the best single source on the 100% Reserve Requirement is Ronnie J. Philips’ “The Chicago Plan & New Deal Banking Reform.” It is a historical overview of the idea from Soddy on into modern times. I owe the comments on The Chicago School and Maurice Allais to Philips’ effort.

Philips notes the 100% reserve requirement to be an alternative to deposit insurance, which under the 100% system would be redundant. He also argues that if the government was to stay involved in bailing out large financial institutions that have bet wrong, much of the effort of the reform will have been wasted.

Philips has done the material extreme justice and has made the case for the relevance of its application to be timeless. In his conclusion he writes. “Our present difficulties stem from the unusual mixture of government and private production of money. The real problem is how to construct financial institutions that do not impede the development of the economy, yet are flexible enough to allow for technological innovation and market discipline. The reforms of the 1930s worked reasonably well for several decades. We will be fortunate if financial reforms in the 1990s endure into the middle of the twenty-first century.”

Read this book. Buy this book.

Solution Two: Money that deteriorates over time

Silvio Gesell, Argentinean-German businessman and anarchist, wrote his masterpiece “The Natural Economic Order”, in the early twentieth century. It was first published as a series of separate articles, and in 1916 as a single volume under this title. Gesell believed that the critical flaw in the structure of money was that it did not deteriorate or suffer storage costs as other goods. This gave money an advantage that could not be overcome by the holders of other commodities. Gesell saw the economic crashes that plagued the world (and still plague the majority of people on earth) were intentionally created and maintained to throttle their populations into submission and acceptance of their lot as chattel of the propertied classes.

Gesell proposed a monetary mechanism known as Stamp Scrip. Stamp Scrip is currency issued with space for affixation of stamps on its back necessary to keep the money current. He favored a one percent per month stamp. Thus a hundred dollar note would require a one-dollar stamp each month, paying for itself in 100 months.

Gesell wished to remove all advantage to the hoarding of money, and to guarantee existence of a circulating medium. Its main success story was the Austrian town of Worgl at the height of the great depression. The local government paid stamp scrip into circulation by undertaking various civic improvements. The results were miraculous. Prosperity returned to Worgl, and the town was running a surplus until the Austrian central bank got wind of it, and quickly shut it down.

J. M. Keynes spoke favorably of Gesell’s proposals and analysis even going so far as to say that Gesell would eventually have a greater historical impact than Karl Marx. Keynes admitted the possible necessity of something like Stamp Scrip when society entered periods of liquidity traps, but only as a temporary measure.

University of Washington at Tacoma economist Guido Preparata makes a strong case that Keynes entire theory of interest is plagiarized from Gesell. “Thus Keynes appropriated Gesell’s Theory of Interest (which accounts for business paralysis when profitability sinks below basic interest- now apocryphally referred to as the ‘Keynesian trap’) but discarded the scrip (too radical)”.

Irving Fisher also wrote favorably of Gesell’s ideas, identifying that Gesell was the first economic theorist to introduce any mechanism that would directly address money’s velocity of circulation. Fisher also favored temporary issuance of Stamp Scrip during times of extreme financial distress. Fisher wrote a book on the idea, “Stamp Scrip”, but did not see it as a complete replacement for the existing system, but only a temporary measure to get things moving.

Solution Three: Universal Basic Income

The notion that a universal personal financial payment of some type would be desirable has a long history, much of which is being covered at this conference. The 1972 American Presidential Election was my first introduction to the concept of a basic income. The Republican and Democratic parties both put forward programs to replace welfare. Both plans showed promise, and both met political demise. The democratic plan fell apart when George McGovern could not explain where the money was going to come from to give everyone a $1,000 a year. The republican plan was allowed to die in committee when Richard Nixon withdrew support for this basic reform. I later ran across Milton Friedman’s free market justification for the basic income in his idea for a Negative Income Tax. I became a believer, but wandered alone for years until the Internet arrived, and I found that not only was the idea not dead, but was vibrant.

The Internet brought me to the Basic Income European Network, (BIEN) and our own United States Basic Income Guaranty,(USBIG). Please peruse the rest of the conference for the arguments from market efficiency, from social and personal justice, and just downright sensibility. The Basic Income is the most important, and I think more important than the other parts of the solution. It is the only solution I would advocate alone, without my other recommended reforms. You only need read the other papers at the conference to understand why.

Solution Four: The Single Tax, or Free Land

Henry Spartacus George wrote his magnum opus, “Progress and Poverty” in 1879. George believed that the economy, both labor and capital, suffered due to inflated land rents. His solution was to tax all land rents, replacing what he considered a landed aristocracy with a vibrant free market. Silvio Gesell dedicated “The Natural Economic Order” to Henry George. George believed the single tax on land rent would replace the destructive customs duties, and the proposal for graduated income tax, which he considered to be onerous to the promotion of prosperity. He contended the single tax would not, and would promote universal prosperity.

Silvio Gesell also recognized the unique nature of land in the economy. He believed land should be publicly owned, and privately held through a tax or rental schedule. Though his money theories are not anticipated in George, much of his land theory is. Gesell understood that there were two entities that could not be allowed to serve only private interests, money and land tenure. If any person or group of persons were to control either they could enslave their fellow man by withholding them. Money and land are unique in lack of viable substitutes.

Jeffrey Smith, the founder of Geonomics, takes George’s concept one step further and argues that the unitary tax be extended to all property rights that the government extends, i.e. copyrights, limited liability, patents etc. This income stream would fund a Basic Income, and not distort the free market as income and sales tax do.

Problems with Money

2006-12-15T17:08:00.001-08:00

Problems with Money: The Widow’s Cruse:

“Now there cried a certain woman of the wives of the sons of the prophets unto

Elisha, saying, Thy servant my husband is dead; and thou knowest that thy servant did fear the Lord: and the creditor is come to take unto him my two sons to be bondmen.

And Elisha said unto her, what shall I do for thee? Tell me, what hast thou in the house? And she said, Thine handmaid hath not any thing in the house, save a pot of oil.

Then he said, Go, Borrow thee vessels abroad of all thy neighbours, even empty vessels; borrow not a few.

And when thou art come in, thou shalt shut the door upon thee and upon thy sons, and shalt pour out into all those vessels, and thou shalt set aside that which is full.

So she went from him, and shut the door upon her and upon her sons, who brought the vessels to her; and she poured out.

And it came to pass, when the vessels were full, that she said unto her son, Bring me yet a vessel. And he said unto her, there is not a vessel more. And the oil stayed.

Then she came and told the man of God. And he said, Go, sell the oil, and pay thy debt, and live thou land thy children of the rest.” II Kings, Ch. 4, verses 1-7, King James Version, Jewish and Christian Book of the Dead

“Workers consume what they earn, capitalists earn what they consume.”

M. Kalecki

The Widow’s Cruse owes its name to the miraculous act of Elisha in saving the Widow’s sons from enslavement by her creditors. Kalecki’s quote demonstrates the modern usage of the concept, i.e. that no matter what they do the holders of capital will maintain their monopoly and dominance of those who work for their bread. Whether one agrees with the basic concept, that the domination of capital is inevitable and permanent in laissez-faire markets, everyone must recognize the conflict between money’s two main functions, medium of exchange and source of credit for investment. The conflict between an honest, neutral medium of exchange and ready funds for investment has been decided. We have chosen to favor the ready funds for investment to the detriment of whole societies, if not the whole world.

Modern money has several problems that must be addressed. While I can’t actually claim that the structure of modern money was the product of some long design process in which the forces of darkness have seized control of our medium of exchange, the result is the same. The kindest interpretation of our path to the current situation is that a series of historical accidents have brought us here. This allows us to look at the individual problems and their solutions with calm resolve, but make no mistake; taken together the flaws in the structure of the modern monetary mechanism constitute an almost inescapable Leviathan.

Problem One: Fractional Reserve Credit

The most egregious problem is the credit extended by commercial banks and other credit issuers. Commonly known as fractional reserve credit, this allows the banks to loan the same money, over and over, or as economist Abba Lerner puts it, “It is precisely the special quality of banks, or rather of the banking system, that in such an expansion is quite peculiarly favored by being able largely to count on retaining possession of what it sells and thus have it available for still further expansion.” That is they loan and re-loan the same money, over and over.

French economist Maurice Allais goes further

“The ‘miracles’ performed by credit are fundamentally comparable to the ‘miracles’ an association of counterfeiters could perform for its benefit by lending its forged banknotes in return for interest. In both cases, the stimulus to the economy would be the same, and the only difference is who benefits.”

Allais identified “six fundamental objections to the system of fractional reserve banking: (1) the creation and destruction of money by private banks; (2) sensitivity of the credit mechanism to short-term economic fluctuations; (3) the basic instability engendered by borrowing short and lending long; (4) the distortion of income distribution by the creation of ‘false claims’; (5) the impossibility of control over the credit system; and (6) nonexistence of efficient control of the aggregate money supply.”

The ability of capital to dip into the Widow’s Cruse and use the returns to enslave rather than liberate is the heart of the problem. Jesus of Nazareth understood it better than anyone when he told us that, “He who has will get more, he who has little will have the little he has taken away.”

Problem Two: Technical Innovation

Buckminster Fuller best identified this human process as ephemeralization, the act of doing more with less. The almost universal conception is that ephemeralization is good for people, that is, that technological innovation benefits humanity. Unfortunately this is not true; the utility of innovation falls to money, not people. Every time someone invents something that increases “efficiency”, it is money that is made more efficient. Combine this with the Widow’s Cruse and our own ingenuity becomes our enemy.

Problem Three: Money Can Go on Strike

The next major problem with money is that it can be withheld for speculative purposes. That is, if the operators of the money mechanism operate it in a manner that money can hold its value over time, funds can essentially go on strike. If for some reason, those in control of the money mechanism do not like the situation at hand, money can be withheld until whatever competition money has perceived has dried up, and starved. The ability to destroy or withhold money is just as powerful and subject to abuse as the ability to create it.

Problem Four: Money Is a Flawed Measurement

Great efforts have been made and much written about comparing prices over time. Representative baskets of goods, constant dollars, price indexes have all taken their turn to try to make dollars, francs, yen, etc. comparable over time. The basic problem with all indexes is that money is already an index. No one is willing to face the problem of garbage in, garbage out. If the data of prices in dollars is bad data to begin with, no amount of massaging will make it better. Unless the entire sum of money is specifically defined and known to the general public one cannot say any thing about prices in different times. When commercial banks flood one area with money and starve another, price has no objective base. Unless one has the ability to compare what a defined fraction of the entire stock of money has done, no comparison can be made on a scientifically supportable basis.

Problem Five: Money feeds back on itself.

The principal factor in determining whether one is capable of attracting money,(i.e. making money in the free market) is how much money one has, or doesn’t have, as the case may be. Nothing stinks worse in our world than being broke, and nothing smells better than being flush. What now passes for competition and markets is really nothing more than occasional civil wars between economic royalty and the palace retainers who operate their companies. Money is what money says it is, and we must all live with the definition that money now speaks.

How Money Works

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How Money Works

Our perceptions of and ideas about money are almost preconscious. Money was already in existence at the beginning of history. The most sophisticated mathematics of antiquity deal with interest calculations. Our most strongly held convictions surround money. Only our notions of God can compete, and even then, money is often the center of religious teaching. The Apostle Paul went so far as to say that “the love of money is the root of all evil.” So let’s begin simply and build. Money flows in a circle.

Money comes to people in six ways
They trade something for it
They create it
They confiscate it through deceit or force
They receive it as a gift
They borrow it
The money they possess is augmented by the destruction of other money

Money flees people in six ways

1. They buy something with it

2. They destroy it

3. Someone confiscates it through deceit or force

4. They give it away

5. They lend it

6. The money they have is diminished by the creation of other money

Modern money is a hodgepodge of different entities. Most modern states have a central, state owned or operated bank. These banks usually issue the national currencies of the various countries. In addition there are a myriad of commercial banks, money market funds, and other entities that extend credit or commercial paper that are accepted as money, and are often convertible to currency. The fact is that the great majority of our medium of exchange is created by for profit, business entities. Private citizens enjoy no such rights.

Money is extremely malleable, able to absorb and articulate massive sums of new money. This allows those who are authorized under the modern protocols of money to redirect whole sectors of the economy. This is done by the extension of credit to those deemed credit worthy in the form of demand deposits. These demand deposits gain their purchasing power by taxing all other monetary divisions in the system. This is the principle form of taxation in the system, dwarfing all other forms, and virtually unknown to all who pay it, but counted on by those who live off it.

Some of the best minds in the world devote their entire lives to keep this circle, or wheel if you will, turning smoothly. Even these best efforts often fail.

The Invisible Hand

Money is a Tertium Quid, a third thing. It allows people to trade without looking for someone who has something that they wish to trade for, they can buy and sell. Indeed the words buy and sell are meaningless without money. People park their purchasing power in money until they wish to use it. This idealized system of trade creates a milieu in which the activities of millions or billions of people can be coordinated, articulated, and harmonized. Money is the principle tool of the invisible hand.

The Mechanics of Money

Money has two structural principles that operate on human behavior and explain the mechanical interaction of humans and money.

1. The Substitution Effect - The substitution effect is money's marginal operator. When the price of potatoes goes down, potatoes become more attractive vis-a-vis other things. If the price of books goes up, they become less attractive vis-a-vis other things.

2. The Income Effect - The income effect is money's average operator. When the price of apples goes down, the people who buy apples have a little more money. This ripples to all money in the system, all monetary divisions are enhanced. When the price of wheat goes up, the people who buy wheat have a little less money. This ripples through the economy, all monetary divisions are diminished.

Types of Goods

Normal Goods - When the price of a normal good goes up, consumption goes down by about the same amount. When the priced of a normal good goes down, consumption of that good goes up by about the same amount.

Superior Goods - When the price of a superior good goes up, consumption goes down but by a lesser amount. When the price of a superior good goes down, consumption goes up but by a greater amount.

Inferior Goods - When the price of an inferior good goes up, consumption goes down but by a greater amount. When the price of an inferior good goes down, consumption goes up but by a lesser amount.

Giffen Goods - When the price of a Giffen good goes up, consumption goes up. When the price of a Giffen good goes down, consumption goes down.

Wieser Goods - Wieser goods are not purchased individually. If they are available free, the only decision is whether they are available or not. This is dependant on "heroic" action of individuals or society.

Giffen's Paradox- The World of Hyperscarcity

In 19th century economists were puzzled by the fact that when the price of corn went up, people demanded more of it. British economist Sir Robert Giffen finally explained it. The lot of the working classes had begun to improve, and they had begun to vary their diet, adding meat and fresh vegetables to their staple of corn. But when the price of corn increased they had to use more of their income to buy the same amount of corn. In order to maintain the same caloric intake, the only commodity cheap enough was corn, so they stopped eating fruits and meat and went back to corn, for virtually all of their food intake. The income effect was so great it over came the substitution affect. The iron law of demand was dead.

Wieser's Paradox of the Well-The world of Hyperabundence

Imagine a village dependent on unreliable riparian sources for their water. They discover that digging in a certain location will yield an artesian fountain with limitless, uncontrollable amounts of water. Economic theory tells us that no individual would undertake the effort to dig the well because it would have a price of zero, as no gate could be established. Again, the income affect would overcome the substitution affect. Wieser ventured that someone would simply dig the hole, without regard to economic gain. Common sense tells us this is true, if and only if the owners of the riparian water sources could not prevent.

The Limits of Monetary Rationality

Money's rationality, that is it's ability to be used as an effective tool of comparison and measurement, exists only between the extremes of hyper-scarcity and hyper-abundance. It's natural movement is to oscillate toward the extremes and become dysfunctional. Money's balance is maintained only by intentionally managing it. Humans must keep money in the range of rationality, by avoiding the pitfalls of extreme poverty and obscene wealth.

Money moves from person to person each time there is an economic exchange. As long as it continues on its regular path it is difficult to say much about it. It is when it changes courses, or stops, or starts, that we get a chance to examine it in detail. It is when a person changes from apples to oranges, or from cotton to silk, or from cognac to ripple that money reveals itself. When money is born, or when it dies, a ripple can be spotted.

Exchange

A trade of a product or service for another product or service. It can be voluntary or coercive.

Monetary Exchange

A trade of a product or service for money

Money

Money is a digital proxy of value. It can take the form of coin, paper, computer bits, journal entries, checks, shells, rocks, or verbal promise.

Value

The worth of one good in terms of another, a ratio.

Worth

Immediate usefulness of a good or service.

Price

A price is an amount of money the buyer gives and the seller receives in an exchange.

Cost

Amount of worth surrendered in a purchase or sale

Benefit

Amount of worth acquired in a purchase or sale

Offer

Amount of money for which someone is willing to sell a product or service.

Bid

Amount of money which someone is willing to pay to buy a product or service.

Money is a Con

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Modern money is a con,

based on the most fundamental type of deception, misdirection. The deception is the commonly accepted notion that modern currency divisions have some existential status that should be kept stable. If the prices of products stated in dollars actually remained stable, then money would be redundant. We’d have only to produce and trade, no bargaining would be necessary. The bid economy would be dead. But price is the constantly volatile measure of the relative value of various goods. Having highly stable prices in dollars while the numbers of dollars are driven up and down is not stability, it is manipulation.

Most of modern economics is the study and direction of this manipulation.

This is not necessarily a bad thing, but it does call into question the status of economics as a science.

Money is relative,

but relative to what? How much money is there? Is the value of the money that you hold dependant on how much other money there is? What is money today? Where does it come from? Who creates it? What effect does that creation have on the money you hold? If you cannot easily answer these questions or even if you can, if you’re not rich, then....

the odds that you are being screwed by money are very high.

What I hope to offer here is a method to screw money so that it cannot continue to screw the poorest ninety-eight percent of humanity.

As in most cons, those perpetrating the fraud depend on ignorance.

The first step in defeating the con artists is acquiring knowledge of how money works.

This web page collection is dedicated to transforming

human thought on MONEY. Its principle goal is to create

a new Negotiation Space in which to Navigate our lives.