Every time we think we’ve
answered a question as thoroughly as we can, we always find someone who can
misunderstand what we’ve said, and will keep dragging in more and more things,
drifting further and further from the original question. Generally it’s because the questioner is
convinced we’re wrong, and only asked the question to prove that point, and
didn’t pay any attention to what we actually said because he or she “knew” what
we “really” said . . . especially when we didn’t. . . .
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| Money is more than just beads for counting. |
Anyway, here’s the latest
continuation from the questioner about money.
Note that it really doesn’t ask a question, but just asserts presumed
facts:
“There are two main categories of U.S. token counters or
"abacus beads" used to measure economic value: (1) the actual coins
or beads themselves, and (2) promises by Congress that paper or electronic U.S.
Notes it issues will represent the actual beads, or will be redeemable for them
at some future date.
“Regarding category #1, this will sound strange but the U.S.
penny is the foundational "bead" on which the entire economic system
rests. Nickels are just a convenient way to carry around 5 pennies, dimes 10
pennies, quarters 25 pennies, etc.
“But regarding category #2, paper or electronic U.S. Notes
are not the actual beads, but need to realistically represent them and ultimately
be redeemable for them.
“In any case, both forms of TDLMUS are debt-free
interest-free economic counters, and the holder in no way incurs a debt by
holding them, and owes nobody anything for holding them.”
The basic problem here is
that the questioner is operating from a limited “Currency Principle”
orientation, while the Just Third Way operates from a full “Banking Principle”
orientation. His comments and analysis
are therefore comparing apples and oranges.
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| Five mills — one half cent. |
To begin, a minor point. The basis of the U.S. monetary system is the
“mill,” not the cent (erroneously called a “penny”), 1/1,000 of a dollar, a
tenth of a cent.
However denominated, though,
money per se is anything that can be
accepted in settlement of a debt; “all things transferred in commerce.” Currency — “current money” — is a standard
way of measuring money, by common consent usually determined by the State.
Even today the vast majority
of transactions do not involve currency, but privately issued credit (“debt”)
instruments that fall into the two broad categories of mortgages (representing
existing marketable goods and services) and bills of exchange (representing
future marketable goods and services). A
mortgage, based on existing wealth, bears interest. A bill of exchange, based on future wealth,
passes at a discount.
For an adherent of the
Banking Principle to speak of “debt-free money” in the sense used by an
adherent of the Currency Principle makes no sense. Money and credit are simply two aspects of
the same thing, the opposite sides of the same transaction, per Say’s Law of
Markets and the accounting equation:
Assets = Liabilities + Owners Equity.
Given that we are two parties to a transaction, my liability is your
asset, while your liability is my asset.
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| Henry Dunning Macleod |
Creating money (asset) without
a counterbalancing debt (liability) is nonsense; you can’t unilaterally create
an asset without there being an equal liability somewhere. Thus, as the lawyer-economist Henry Dunning
Macleod pointed out, “Money and Credit are essentially of the same
nature; Money being only the highest and most general form of Credit.” (Henry Dunning Macleod, The Theory of Credit. Longmans, Green and Co., 1894, 82.)
All money is a contract, just
as in a sense all contracts are money.
Money, therefore, must consist of offer, acceptance, and consideration,
the three essential elements of any contract.
Without consideration, that is, without the inducement to enter into a
contract (the thing of value being exchanged), no true contract exists, and the
money is false money, “legal counterfeiting” as Paul Samuelson facetiously
quoted Irving Fisher.
The existence of
consideration as an essential element of a contract necessarily implies the
existence of a debt, that is, the obligation of one party to the contract to
deliver the stipulated consideration to the other party, and the obligation of
the other party to deliver his or her consideration, completing the bargain and
cancelling the money that was created by entering into a contract.
When an adherent of the
Banking Principle refers to “debt-free money,” it means that the consideration
consists of something of actual, measurable value, usually in terms of the
local currency unit, but not necessarily.
Specifically, it means that the backing does NOT consist of
government debt. The credit or “debt”
instrument is a private sector “real bill” in the old terminology, i.e., is a credit or “debt” instrument
backed by something, an asset, that has a real, precisely definable value.
This is because the value of
government debt relies on the ability of the government to collect taxes, which
(as we have seen recently in the “PIGS” countries, especially Greece) may be
extremely problematical. Government
bills of credit, because the future ability of the government to collect taxes
cannot be measured with the same precision as the future marketable goods and
services of the private sector producer, are classed as “fictitious bills”
because there is nothing precisely definable behind them.
#30#
