What is Money ?

 Besides being the root of all evil, according to some we should ask ourselves what is money.   One of the most common answers is that money is a medium of exchange.   It allows for anything to be traded because everyone put a value on money.   No matter what your product was you were willing to exchange it for money,  knowing that the seller of whatever product you needed to buy in turn would gladly exchange it for the money you had to give to him.  

The important thing was that everyone placed value on whatever was used as money. Gold and silver in modern times but rice, shells, large stones for example were once used. The Indians believed wampum beads had value so they were willing to sell land, pelts and goods for a few beads.   That sounds crazy but is in fact less crazy than a 10 euro note. The money itself had an intrinsic value. The bead itself or an ounce of gold was worth a value. It took an equal amount of effort to get the ounce of gold out of the ground as it did to produce the product it would buy.   The value of the gold did not fluctuate much and neither did the value of the product.   It was a pretty good unit of measurement. Things began to go astray when the bankers entered the picture.   They began as simple metal smiths.   They coined the metal into coins.   They of course kept some metal on hand to work with.  They offered to hold the excess metal of others in safe keeping.   In time they issued a receipt for the gold which was acceptable to trade as it could be exchanged for the gold at any time.   The hidden secret was that as long as the gold was not withdrawn then who was to say the bankers were not issueing more receipts than there was gold in the vault.   As they had the use of the gold they could lend it at interest and make money on other peoples money.   It was a great moneymaker.  

The bankers hit the jackpot in 1694 when they convinced the King of England to allow them to set up the Bank of England.   In exchange for them lending the King money they were allowed a monopoly and given the right to issue the currency.   The King would borrow as much as he liked.   The interest paid the bankers was gravy and the debt was never intended to be paid back but to continually rise.   The King passed the Legal Tender Laws and created a demand for the new currency because taxes had to be paid in the new notes.   Eventually the peg with the gold was broken entirely so the central bank could just print as much as they liked.   The money no longer had intrinsic value and was a fiat currency.   To nobody’s surprise they have printed trillions since then.   

Now the question is  “Why should the bankers be allowed to print money when by doing so it decreases the value of money already in existence?”   Everybody is getting robbed.   When the Bank of England expands the money supply by 200 billion it means that most are worse off by 200 billion and a few have gained 200 billion.   The unit of measurement called the pound has been reduced in size.   It is dishonest plain and simple and is theft. It has allowed the government to spend money not honestly gained in taxes. The result is a hidden tax called inflation.   If inflation is 10% you are paying 10% tax and most do not even realise it.  

Any society must have a currency which does not lose value.   The supply must be kept constant. It is not necessary to back a currency by gold, necessarily.   As long as the state issues the currency directly and keeps the supply constant that is fine. The issuing of the money must be taken away from the bankers.   This calls for a balanced budget and not state borrowing.   It also calls for the fractional reserve banking practices to be outlawed.   It is called a sound money policy and inflation would be a thing of the past.  

One step toward a just society.

Youngdan   16. 02. 2010

Reginald's Tower Waterford - The First Mint in Ireland

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4 Responses

  1. While I entirely agree with your conclusion regarding the banks I must however say that your history of money and banking, while orthodox, is not only reductionist and eurocentric, but also wrong in the timeline, namely in the role of bankers and their appearance. While it is true that banking as we know it has it’s origin in a well known jewish german family, in fact the origin of money and banking is to be found in the first agricultural societies, namely Babylon, banking assuming essentially a redistributive role. We can therefore say that banking is as old as the state.
    Likewise, inflation is not a recent phenomenon, and though it has reached to exponential levels by the creation of fiat currency it was also present in metal based currencies.
    There were several methods how sovereigns (normally to pay for war) would increase the monetary supply in the absence of new metal, by reducing the weight of coins. One was as simple as shaking a bag full of coins and coining new using the resulting dust.
    Interesting as well was the role of not only but mainly jewish bankers in Iberian societies. They would finance the sovereign or the nobility by buying the right to cash in future taxes. That was probably the main reason why jews were hated by the common people. Contrary to common belief, the expulsion of the jews was driven not so much by Church imposition as it was by the risk of social fracturing that their status implied. Proof of that was the protection that royalty, nobility and high clergy allways provided to the jews. One of the oldest jewish comunities in Europe is that of Rome, who was under the protection of the Papacy, to whom they provided loans.
    Such was their role also in the oldest surviving feudal society in Europe, the Polish-Lithuanian Commonwealth. The Khmelnytsky Uprising that put an end to that society was even more thraumatic to Ashkenazi jews than was the expulsion to the Sephardic.

    But back to the conclusion, one thing that I would like to have an answer to is how can present societies exert democratic control over the masters of money. Any ideas?

  2. That is so, however were I to go into such depth then it would be an article of great lenght. As you know, the longer the article, the less likely it is to be read. You touch on numerous historical themes each of which would merit a discussion in their own right.

    A lot of things trace back to Babylon, even the metre. The cupit being the ancient unit of lenght was supposed to measure from the elbow to the fingertip. It varied from country to country but in Babylon it was one half metre.

    The question imo involves taking the power to issue money away from the bankers entirely. Why should they have such a golden goose to the disadvantage of everyone else.

    Money is a unit of measurement and should be kept constant
    This would entail a dramatic shift from the present situation. No inflation, no central banks, no fractional reserve banking and mot importantly for this to be possible, no government deficits

  3. As I said, I entirely agree with your conclusions. The question, imo, is how to bring the power that once belonged to the sovereign, the issue of money, to the nowadays supposed sovereign, the people. How can this be acomplished considering that those that have that power are selected, and as the newly selected vice-chairman of the ECB, the head of the portuguese central bank, eloquently pointed out to a parliamentary enquiry comission on his actions as supervisor of the banking system: “The only people I accept judgement from are my peers, and they deemed my actions correct. You were elected but you are not qualified to judge me.”
    How can we put an end to such technocratic arrogance?

    In Argentina, after the 2001n crash, for a brief period the people started issuing their own money, which enabled them to barter. There is a documentary I must have somewhere that told that story.
    http://www.appropriate-economics.org/latin/argentina/weatheringrecession.html explains how it worked. Reasonably enough untill Pesos started flowing again.

    How to put that power under democratic control is, in my view, the big question.

  4. Either of 2 ways.

    The “official way” which is of course extremely unlikely, would be for a national leader to cross the central bankers and issue there own non debt based money. Lincoln did just that when faced with 30% interest rates from the bankers. He issued the Greenbacks. They were debased because of the amounts needed to fund the war. He was assassinated.

    Kennedy issued an XO to introduce a debt free silver backed Treasury Note to compete against THe Federal Reserve Note. It too would be debt free. He too was assassinated.

    The unofficial way would be the introduction of local currencies. There are numerous examples in Ireland and England. They are lame attempts as all are linked directly to the main currency.

    More serious examples exist in the US. For example the Itacha Dollar and the Silver dollars issued last year

    I would like , if you have no objections to have this discussion on http://www.realirishpolitics.org as well as here because I intend to spend a lot of time going into money matters back there

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