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(known in this country as the Federal Reserve and its attendent banking system--which are the 'seeming' independent banks we see on every street corner)
A public monetary system is one controlled by a country’s government and central banking system. It is supported by statutory laws which declare the currency published exclusively by this system to be legal tender; the only medium that will be accepted from the public as payment for government fees and taxes.
Public systems have formed by degrees around the conception that money is a value of itself which appeared to the public to require bureaucratic supervision. Somehow, the precious metal intermediary commodities used in indirect barter were confused with value itself. The fact is, money, an evolutionary step beyond intermediary commodities, is a credit instrument that conducts value.
The philosophical basis for the monetary system, inherited from Great Britain, was the royal notion that the state can have a separate existence as a creative force, yet, at odds with this is the American political viewpoint that the state is a service organization and a utility guided by its sovereign citizens through the rule of law. Our public monetary system places government in the role of patron which implies that it is not only financially self-supporting but anxious to lend to its ‘children’ citizens. In contrast to this, our political system portrays government as subservient to its citizen’s service requests which they underwrite through tax assessments.
It is this work’s contention that this antipathy of placing in government hands both the money issuing power and the taxing power has proven untenable; that this dichotomy of a monetary plutocracy embedded in a political democracy has precipitated the waves of economic crisis in our nation’s history and the reactionary government spending ‘initiatives’ that drive this country deeper and deeper into socialism—ever further from what we wish—the democratic ideal. Our nation’s massive deficit is one clear manifestation of government acting out the role of a patron spending at will without taking notice that its tax receipts are orders of magnitude less than its largess.
As we shall see, the critical defect of public monetary systems is that their credit instruments do not transmit value securely, but, allow it to leak insidiously away from where it’s intended and into shapes and forms, such as money markets, that distort and disproportion private enterprise, the government, its banking interface and the economy at large.
That money was misunderstood and this discrepancy of philosophies undetected during the formation of this country is clearly revealed by noting the two sparse sentences devoted to the subject in the Constitution. Review of the notes from the 1787 Constitutional Convention confirms the brief attention given a subject of fundamental importance.
Though the year 1776 marked this country’s liberation from English political control, we embraced its banking laws which not only supports government control of the monetary system with an unsecured value unit but also permits commercial banks to, essentially, gamble with depositors’ money.
Despite how we understand it, we use money daily as a credit instrument to facilitate the exchange of our productive energy. Regardless of the monetary theory currently expounded, fundamentally and indisputably things are only ever purchasable with things. Our monetary transactions involve no ‘standards’ or precious metal intermediary. We don’t want metal we want exchange power. We are daily credited for our work in terms of the monetary systems unit of account, the dollar, and then spend these dollars to purchase the goods and services we require to live.
Regardless of efficiency, the economy must have a money supply for society can not stand still and cannot progress without expanding exchange. We have not yet come to realize that the power to issue money resides in ourselves. We haven’t yet understood that it is not possible to delegate the money power even if we would for it is inseparably linked to our buying wherein we must exert our private discretion. By default we have embraced the old world system where pressure falls upon government to attempt to issue what can only ever be soundly issued by individuals at purchase. The publics system tasks government with the impossible which forces it to spend. Yet, these expenditures are doubly deleterious for not only is government issue water pouring into milk, but, increasing government acquisition of resources removes them from private hands where history has repeated shown they are far better utilized.
The Public System’s Issue Policy
The critical element and thus that which best characterizes a monetary system is how its medium of exchange is issued for issue policy determines the quantity of value transmitted or the ‘power’ of the unit of account.
The milk of an economy is the products and services its producers contribute. Credit instruments allow this milk to be monetized which is to say; represented in a readily transferable format in order to facilitate exchange. A sound monetary system secures the value during its transmission from buyer to seller. An unsound system with unsecured credit instruments results in two serious distortions. The first is that the leaking value is insidiously rerouted away from where it was intended. The second is the massive circulation of false money, that issued without any connection to products and services, is water constantly and insidiously diluting the milk of the economy; ever reducing its nutritional value necessitating an ever greater volume.
To ‘Issue’ Defined
Let us review what ‘to issue’ means in monetary terms. Recall from earlier in this work, during the whole-barter phase, how, even if traders agreed on a price of, say, 50 lbs of vegetables for one table, Karl the carpenter couldn’t trade his table to Fred the farmer because Karl couldn’t consume that quantity of food without loss to spoilage. The flowering of barter, money—the credit instrument, was born out of this whole barter impasse.
Fred: Karl, I need that table. How about if I write out to you four drafts each for a value of 10 lbs vegetables and you take 10 lbs fresh with you? I will redeem these drafts for fresh vegetables at any point they are presented.
Karl: That works! Done deal.
The moment that Karl agrees to this exchange, the four drafts are infused with value, recorded in terms of the unit of account (10 lbs vegetables in this case) and thus does Fred create or issue money.
To issue money is to create money. To redeem money is to destroy it for money is but an accounting concept; floating ledger credit and debit entries that record our productive energy exchanges. To issue money is a buyer who’s an active market participant infusing a credit instrument with a value assessed in terms of a common monetary unit and validated by the seller’s acceptance of the instrument and surrender of products or services.
There are two essential conditions required for money creation.
- That a product or service is surrendered by the seller—the money is backed by value.
- That the issuer is an active producer capable of redeeming or ‘destroying’ or ‘retiring’ his debt to the marketplace by offering with products or services of comparable value.
Governments have never issued money for they are not in the business of producing goods and services that they must market competitively and thus have no way of redeeming their issue. It is natural law not statutory law that grants the issue power to producers; government can merely give sanction to the natural issue power which resides solely in the buyer and which he can assert without sanction by the use of a unit other than the government unit. Nor can producers delegate the issue power to the government; it cannot be delegated of conferred, it is inherent in the buyer.
Neither paper or cotton and ink nor coinage constitutes money. These are but evidence of intent to issue. They have no more significance than writing a check and leaving it in your checkbook. No actual issue can take place until there has been an assessment of value by the buyer and the exchange media is accepted by the seller signified by his surrender of products or services. Issue is solely a concomitant of purchase and inseparable from it. Hence, issue power can not be delegated; there can be no such thing as political power to issue for the community—vicarious money issue is impossible. To issue money the trader must buy for in order to buy the trader must assess value which is precisely what the money concept is: assessment of value. This value is then expressed with the money instrument: a record of the exchange in terms of a monetary unit.
What assurance is there that the buyer will in fact later provide offsetting value to the marketplace?
Issue policy is what assures a trader’s fidelity. If his only source of money comes from marketplace participation, the issue policy is sound for he will exhaust his money supply and debar himself unless he becomes a seller and bids for it with his own products or services. Conversely, the better a trader focuses his production on market needs the richer he becomes. But, if a buyer has access to ‘granted’ money than he does not truly issue it when spending but, in fact, he inflates the economy—adding water to milk. Why? Because under these circumstances no pressure rests on him to resupply the marketplace with comparable value.
Issue Policy [sanction]
As discussed above, no group or bureau or board or government can issue sound money so issue policy in a public system is actually media distribution policy. This power is purely negative in that it impedes the natural economic power of the buyers to issue money by withholding the media of exchange. Thus, when government grants subsidies and benefits it merely relaxes its negative and allows the inherent power of the recipients to issue money to the extent prescribed. No issue can take place however, until the recipients of the allotted exchange media issue it in purchase. In this modern age we are ‘specialized’ in the sense that we focus the majority of our productive energy into the creation of a very narrow range of products or services—often just one. As a result, we rarely consume what we produce and thus require a ready source of exchange media to purchase the wide range of products and services we need to live. Exchange media has become as necessary to us as water and air. And yet, because public monetary systems withhold the exchange media we must supplicate ourselves to government to acquire it.
Having asserted exclusive media distribution power, the government is immediately confronted with a host of problems. First is that the exchange media comes from one source, Washington D.C. but must spread out to supply a stream of exchange media for hundreds of millions of constituents.
Another problem is how can the constituency support the state without private enterprise and how can private enterprise function without money-creating power? How can the state, professing to be democratic and impartial, grant credit to some and deny it to others?
Let us hearken back to Fred the farmer creating money by issuing 10Lb vegetable drafts. The public monetary system says “We will interject ourselves between Fred and Karl and manage these drafts for a fee. Now, Fred, just having had a good tomato harvest, cannot simply write drafts but must get the attention of government in Washington D.C. to sell him some generic drafts in order for him to proceed and what’s more, beyond the explicit fee will be implicit siphoning of value out of these now government drafts so that Karl will not receive the full value he contracted with Fred to receive.
The state, by its own spending, provides some circulation. And the buying of the recipients of its patronage supplies more. But this is not enough for the economy. Some additional supply must be created. Since the state can issue money only by buying, there is not (unless the state goes extensively into industry) enough money for the economy. What is the solution of the dilemma?
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