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The future of money: private complementary currencies

By atreyu42 in Science
Thu Aug 28, 2003 at 01:03:25 PM EST
Tags: etc (all tags)

Bernard Lietaer, co-designer of the convergence mechanism of the Euro, talks in a interview about the problem of conventional money systems, what money is, and private complementary currencies.

Table of contents Corporate scrip

Some examples of "corporate scrip" (a private currency issued by a corporation):

Anonymous electronic money as E-gold and DMT Rand, although it's not said, are mainly used so far to avoid detection and taxation, and therefore money laundering.

Corporate scrip can be used to abuse workers. In 1931 W.A. Bechtel was paving roads in Northern California. Workers were paid $4 a day in scrip and charged half of that for food and a rented tent. Because of the scrip, workers couldn't choose another tent or food.

Complementary community currency systems

Some examples of private currencies issued by communities:

  • Time dollars are a tax-exempt kind of money that lets people convert their personal time into purchasing power by helping others in the community. Everyone's contribution is valued the same: an hour for an hour. The time dollars earned helping others can be used to receive services or help from someone else. When someone spends time dollars, someone else earns them. They can be saved up or they can be given to someone else who needs help.
  • Fureai kippu are japanese private currency systems to pay for any care for the elderly that isn't covered by the national health insurance.
  • Ithaca HOURS local currency is issued by a local community organization in Ithaca, New York. Ithaca HOURS are printed and exist physically. In Ithaca people can go to the farmer's market and buy vegetables and eggs with them, or even pay part of their rent.
  • LETSystem is a self-regulated trading network supported by its own private currency, equivalent in measure to the national currency to make the system more practical.

The LETSystem units are information about an individual's position within a trading community. All accounts begin at zero, but nobody needs to earn before spending, because accounts can have unlimited negative balances. This information is disclosed in the network. If someone goes away leaving a negative balance nothing happens. But people could refuse to trade with that person until he or she has put his/her account into better shape. That is why balance and turnover details are available to all the other people who hold an account in that LETSystem.

So LETSystem can be considered an honor system. Most of the other complementary currencies (with the exception of Ithaca HOURS) work in a similar way.

The problem with conventional money systems: the global casino

From Bernard Lietaer's book The Future of Money: Creating New Wealth, Work, and a Wiser World:

Your money's value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stockmarkets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. [...] Unless some precautions are taken soon, there is at least a 50-50 chance that the next five to ten years will see a global money meltdown, the only plausible way for a global depression.

And Lietaers adds in the interview:

There is practically no way today for a developing country to have a reasonable monetary policy within the current rules of the game. [...] Whether you fix your currency to the dollar or let it float, you end up with an unmanageable monetary problem, like Brazil, Russia or Argentina have experienced. Eighty-seven countries have gone through a major currency crisis in the last 25 years. Their fiscal policies are imposed by an International Monetary Fund (IMF). I am afraid that if the United States had to live by the rules that are imposed on, say, Brazil, the United States of America would become a developing country in one generation.

This system is based in scarcity, as Lietaer says in another interview:

We can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive.
Gift economy

On the contrary, complementary currencies issued by communities create a gift economy based on cooperation instead of competition. These mutual credit systems do not require any centralized money supply management. Every user can 'issue' LETSystem units, because there is no negative balance limit. The only requisite is that every transaction must be registered at the LETSystem Registry to be disclosed for other people at the LETSystem. So this system avoids scarcity and therefore complementary community currencies cannot be subject of speculation.

The foreseable future

The Internet facilitates global communications, so a community does not have to be limited to a geographic area. Systems like LETS are easy set up with a computer connected to the Net. Quoting Lietaer: "It enables us to consciously design money to work for us, instead of us for it."

Due to complementary community currencies and to corporate scrip, conventional currencies will lose their hegemony, although they will not disappear. Lietaer says these currencies are "complementary" and not "alternative" to national and supranational currencies like the Dollar, the Euro, etc.

What is money?

An interesting point of the interview is the definition of what money is:

I define money, or currency, as an agreement within a community to use something as a medium of exchange. [...] And most of the time, it's done unconsciously.

The agreement can be conscious or unconscious, coerced or free. Most of us don't consciously choose our money. So currencies (and therefore, money) are like The Matrix; they exist and work because we believe in them.

A previous version of this story was submited before. You can read the comments of the previous version.


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Would you accept time dollars instead of dollars?
o No! Gimme my bucks! 43%
o Yeah. Free money! 26%
o Maybe. 29%

Votes: 64
Results | Other Polls

Related Links
o Bernard Lietaer
o interview about the problem of conventional money systems, what money is, and private complementary currencies
o Corporate scrip
o Complement ary community currency systems
o The problem with conventional money systems: the global casino
o Gift economy
o The foreseable future
o What is money
o Frequent flyer miles
o Disney Dollars
o Canadian Tire money
o Trilegiant Corporation is issuing its own Netmarket Cash for electronic commerce
o DMT Rand
o DMT (Digital Monetary Trust)
o ALTA (Asset Lodgement Trust Accounts) anonymous assets accounts
o LESE (Laissez Faire Electronic Stock Exchange)
o electronic money
o E-gold
o mainly used so far to avoid detection and taxation
o money laundering
o In 1931 W.A. Bechtel was paving roads in Northern California
o private currencies issued by communities
o Time dollars
o Fureai kippu
o Ithaca HOURS local currency
o Ithaca HOURS are printed and exist physically
o LETSystem
o If someone goes away leaving a negative balance
o honor system
o Bernard Lietaer's book The Future of Money: Creating New Wealth, Work, and a Wiser World
o There is practically no way today for a developing country to have a reasonable monetary policy within the current rules of the game
o Lietaer says in another interview
o gift economy
o mutual credit systems
o LETSystem Registry
o speculatio n
o It enables us to consciously design money to work for us, instead of us for it
o definition of what money is
o The Matrix
o comments of the previous version
o Also by atreyu42

Display: Sort:
The future of money: private complementary currencies | 278 comments (166 topical, 112 editorial, 1 hidden)
+1 fp from me. (3.50 / 6) (#12)
by spooky wookie on Tue Aug 26, 2003 at 06:32:53 PM EST

I really think you should remove the matrix reference though.

Already said (4.20 / 5) (#14)
by atreyu42 on Tue Aug 26, 2003 at 06:35:48 PM EST

I won't do it.

[ Parent ]
ok, whatever floats your boat [nt] (3.75 / 4) (#15)
by spooky wookie on Tue Aug 26, 2003 at 06:39:00 PM EST

[ Parent ]
-1 Repost (1.50 / 8) (#17)
by Run4YourLives on Tue Aug 26, 2003 at 07:20:33 PM EST

Author posted a similar story right before this: comments found here.

Don't spam the edit quene, dickwad.

It's slightly Japanese, but without all of that fanatical devotion to the workplace. - CheeseburgerBrown

sorry... (3.00 / 2) (#18)
by Run4YourLives on Tue Aug 26, 2003 at 07:23:20 PM EST

I meant here.

Damn guy's posted so many I'm losing count.

It's slightly Japanese, but without all of that fanatical devotion to the workplace. - CheeseburgerBrown
[ Parent ]

Reedited (nt) (3.75 / 4) (#21)
by atreyu42 on Tue Aug 26, 2003 at 07:42:53 PM EST

[ Parent ]
give it more time. (3.33 / 3) (#22)
by Run4YourLives on Tue Aug 26, 2003 at 07:45:20 PM EST

If I can remember this story just by the title, most folk here won't even bother to see the difference.

Give it a little longer, and link to the comments from before. K5 is unforgiving, you don't want to come off as a crapflooder.

It's slightly Japanese, but without all of that fanatical devotion to the workplace. - CheeseburgerBrown
[ Parent ]

Added link to old comments (3.75 / 4) (#26)
by atreyu42 on Tue Aug 26, 2003 at 08:34:12 PM EST

If I can remember this story just by the title, most folk here won't even bother to see the difference.

And you? Did you bother to see the difference? You said "-1 Repost".

I don't mind. If it is trashed, I'll post it in my diary.

link to the comments from before.

Good idea, thanks. Done.

[ Parent ]
rand money (3.00 / 4) (#29)
by slothman on Tue Aug 26, 2003 at 09:05:12 PM EST

Since 1 Gold Ounce is about $365 wouldn't the DMT Rand conversion of $1 -> 5 rand -> .0035 ounces -> $1.27 be an easy gain of money?

Rand Money (3.50 / 2) (#53)
by The Dark on Tue Aug 26, 2003 at 11:37:34 PM EST

I think its defined as 1 rand = .20 US dollar plus .20 euro plus 20 Japanese yen plus .124 British pound plus .0007 oz. gold.
I think the idea is that it is not as variable as any one of the currencies.

-- Sig's not here.
[ Parent ]
It's just a currency/metal market basket (3.00 / 2) (#56)
by jjayson on Tue Aug 26, 2003 at 11:44:12 PM EST

And I don't see why it is used as an example of a corporate script, similar to frequent flier miles or Canadian tire money.
Smile. =)
[ Parent ]
I don't doublethink so (4.00 / 3) (#59)
by atreyu42 on Tue Aug 26, 2003 at 11:53:29 PM EST

You said:

It's just a currency
...issued by a corporation. That is: corporate scrip.

I don't see why it is used as an example of a corporate scrip

Do you doublethink so?

[ Parent ]
It's not the same (4.00 / 4) (#61)
by jjayson on Wed Aug 27, 2003 at 12:19:05 AM EST

First of all, you blatantly changed the meaing of my sentence by leaving off the final phrase.

The Rand is not like frequent flier miles or Canadian tire dollars. Those other two currencies are exchanged for goods at that company (or related companies).

A corporate scrip isn't just a simple investment vehicle. Your useage broadens the term so that any mutual fund, stock certificate, or commodity is now deemed a corporate scrip. If you accept this, then your article really points to nothing that hasn't already existed for many years.

The DMT, from what I can tell, is really just a currency and metal market basket. How is it any different? How does it differ from a stock certificate, mutual fund holding, or any other market basket?
Smile. =)
[ Parent ]

Definition of scrip (3.75 / 4) (#64)
by atreyu42 on Wed Aug 27, 2003 at 01:17:10 AM EST

The Rand is not like frequent flier miles or Canadian tire dollars. Those other two currencies are exchanged for goods at that company (or related companies).

True. They are differen kinds of scrip.

A corporate scrip isn't just a simple investment vehicle.

False. Definition from the Merriam-Webster OnLine:

3. a: any of various documents used as evidence that the holder or bearer is entitled to receive something (as a fractional share of stock or an allotment of land). b: paper currency or a token issued for temporary use in an emergency

It's both 'a' and 'b'. It's a private currency, because you can use DMT Rand to trade. It's not like any NASDAQ dot-com stock, because as far as I know you normally need to sell your stock (and get cash) in order to buy another stock. But you don't need to sell DMT Rand in order to buy anything. You use DMT Rand to buy stocks, gold or whatever.

The DMT, from what I can tell, is really just a currency and metal market basket. How is it any different?

By being issued by a corporation instead of a state.

[ Parent ]
Incorrect (3.66 / 3) (#137)
by leviramsey on Wed Aug 27, 2003 at 11:56:27 PM EST

you normally need to sell your stock (and get cash) in order to buy another stock

There is absolutely nothing stopping you or anyone else from swapping shares of stock; indeed, what do you think a corporate merger is?

There is nothing remotely new in this article.

[ Parent ]
Merger is an exception, not the rule (none / 0) (#164)
by atreyu42 on Thu Aug 28, 2003 at 04:07:26 PM EST

There is absolutely nothing stopping you or anyone else from swapping shares of stock; indeed, what do you think a corporate merger is?

AFAIK, unless you have a bilateral contract (for a merger, for example) you cannot swap stocks. You need to sell them and get money in order to buy another stocks. Swaping stocks is a form of barter. And barter is different from money. Barter is mostly between two parts, not within a community (unless you think two corporations or two people are a community).

I find this FUD awful.

[ Parent ]
queer as a... (none / 0) (#153)
by dipierro on Thu Aug 28, 2003 at 01:20:27 PM EST

The DMT, from what I can tell, is really just a currency and metal market basket. How is it any different? How does it differ from a stock certificate, mutual fund holding, or any other market basket?

Most stock certificates and AFAIK all mutual fund holdings need to be registered when they are transferred. Presumably the DMT is payable to to the bearer. But other than that, there really isn't that much difference. Of course, that's all currency is anyway. Say I write out a check for $3 payable to "Cash" and sign it. If people trust my signature, I've just created a three-dollar bill, backed by my checking account, and payable to any bearer. If people really trusted me there would be no need to ever cash the check. You could go to the supermarket and pay with my three-dollar bill. See, the federal reserve doesn't really have all that much power that you and I don't have. All of us have the power to print money.

Well, I've gone completely off topic at this point. My point was that DMT is really no different from that $3 check. It just happens to be payable in multiple currencies, instead of one.

[ Parent ]
A way to sell diary postings to rmg? (3.00 / 2) (#30)
by tranx on Tue Aug 26, 2003 at 09:17:11 PM EST

The Internet facilitates global communications, so a community does not have to be limited to a geographic area. Systems like LETS are easy set up with a computer connected to the Net.

How long till Rusty starts printing Kuro$$$?

"World War III is a guerrilla information war, with no division between military and civilian participation." -- Marshall McLuhan

already happened (3.50 / 2) (#43)
by jjayson on Tue Aug 26, 2003 at 10:33:58 PM EST

People have been using memberships as a form of currency.
Smile. =)
[ Parent ]
Energy accounting (3.87 / 8) (#67)
by the77x42 on Wed Aug 27, 2003 at 01:32:26 AM EST

This is where the true future of money is, denominating certificates for the amount of energy used to produce the good obtained.

The idea is to get away from things that denominate 'value' and 'scarcity' and instead generate a currency based on scientific measures and actual consumptions.

"We're not here to educate. We're here to point and laugh." - creature
"You have some pretty stupid ideas." - indubitable ‮

what the... (4.42 / 7) (#70)
by jjayson on Wed Aug 27, 2003 at 05:23:08 AM EST

From the second link:
This also eliminates the possibilty for profit motive, and thus ensures that all products and services are of the highest quality, with the lowest cost in resources.
How does that work? They seem to be saying that Casablanca is worth the same as the latest shitty Sci-Fi movie (assuming they both requied equal energy to produce). It seems to completely ignore the most important part of something, how much people like it and how much enjoyment they get out of it. Or even the intellectual or creative effort that went into forming something. How worthless.
Smile. =)
[ Parent ]
I know... (3.00 / 2) (#180)
by the77x42 on Fri Aug 29, 2003 at 12:31:49 AM EST

There's a lot more to it. The whole concept is designed as an entirely new society that is not based on scarcity, but scientific fact and conservation. Technocracy dates back to the early 1920's and there is literally tonnes of information on the subject. Energy accounting is probably one of the more unique aspects of the ideal, and most likely the central theme.

The idea would also to be (in a very rough sense) to have people produce only the best products because there is no gain from producing lower-quality products. Obviously in an artistic field like film this would vary considerably, but I think they are more talking consumer goods like cars or tv's or things of that nature.

"We're not here to educate. We're here to point and laugh." - creature
"You have some pretty stupid ideas." - indubitable ‮

[ Parent ]

Inefficiency In Cost Efficiency (none / 0) (#221)
by freestylefiend on Sat Aug 30, 2003 at 11:55:41 AM EST

It would discourage things like transporting North Sea prawns to Africa for shelling and then transporting them back for consumption. Arguably this would result in delivering better value to people. Better freshness and environmental protection would be achieved by local processing of goods and moving some information jobs to less fertile areas.

[ Parent ]
You still get to choose what to buy. [NT] (5.00 / 1) (#271)
by craigd on Wed Sep 10, 2003 at 08:43:00 PM EST

A man who says little is a man who speaks two syllables.
[ Parent ]
Interesting. Let me ask some questions (4.20 / 5) (#81)
by atreyu42 on Wed Aug 27, 2003 at 08:23:16 AM EST

First of all, I think the system propossed, Energy Accounting, is like this (Tell me if I'm wrong):

  • The new money is energy credits, opossed to conventional money
  • .
  • Energy credits are based in the whole amount of energy produced by the state. Like dollar was based on gold.
  • The money (energy credits) are issued only by the Goverment.
  • Energy credits are not transferable among citizens. They can only buy things from the Goverment.
  • Price control by the Goverment.

Isn't this a new form of statism? The Goverment would have too much power in its hands (Never said it better).

I don't like it. Energy accounting is centralized and promotes the power of the Goverment. Complementary community currencies are decentralized and promote the power of the citizens and their independence from Goverment (central banks) and speculators.

Anyway, I'd rate your comment 5. It's informative. But I learned it's a bad netiquette to rate comments in your own story.

[ Parent ]
you asked for it (3.00 / 2) (#90)
by tranx on Wed Aug 27, 2003 at 11:01:26 AM EST


note: once the story is published you can rate whatever you want, before that you can give the occasional 5 here and there... but you're really learning, I saw how you restrained your 1s with jjayson

"World War III is a guerrilla information war, with no division between military and civilian participation." -- Marshall McLuhan
[ Parent ]

Designing money (3.40 / 5) (#91)
by atreyu42 on Wed Aug 27, 2003 at 11:02:15 AM EST

This reminds me that money can be designed for a specific purpose:

"It enables us to consciously design money to work for us, instead of us for it." -- Bernard Lietaer.

[ Parent ]
Sounds Marxist. (4.42 / 7) (#85)
by TheEldestOyster on Wed Aug 27, 2003 at 09:54:40 AM EST

So I would pay the same amount for a shitty pie and a good pie, because they took the same amount of energy to produce?
TheEldestOyster (rizen/bancus) * PGP Signed/Encrypted mail preferred
[ Parent ]
It's even worse than that... (4.20 / 5) (#93)
by ajf on Wed Aug 27, 2003 at 11:11:12 AM EST

a horribly burnt pie would be more expensive.

"I have no idea if it is true or not, but given what you read on the Web, it seems to be a valid concern." -jjayson
[ Parent ]
The Marxist concept of 'value' has long been known (3.50 / 4) (#144)
by cathouse on Thu Aug 28, 2003 at 07:36:34 AM EST

to be at best useless, and should be disguarded as any worthless burden.

The inverse concept is far more difficult for most people to accept; that is that money need not have value.  Money is not, as has often been stated, just a symbol.  Money has [not value] utility and needs to be looked at and considered in the same way as any other TOOL.

The awful human cost of money being priced beyond the means of the people is clearly seen in the history of the United States between the War Between The States and the US entry into World War I.
...and mankind shall not be crucified upon a Cross of Gold.


pity this busy monster manunkind not

progress is a comfortable disease

[ Parent ]

What the theory really says (none / 0) (#219)
by kaol on Sat Aug 30, 2003 at 05:03:55 AM EST

That's an oversimplification of the theory. Utility enters the picture in determining the demand of a commodity.

If the supply is too large, firms will reduce production or close down and capital will move to more profitable markets. If the supply is too small, above-average profits are a signal to other capitalists to move into the market. In either case, the prices will approach the cost of production plus the average rate of profit.

Mud pies and apple pies would indeed cost the equal amount. But the supply of the mud pies would be drastically lower than of apple pies.

[ Parent ]

Measuring Value and scarcity is the whole point. (5.00 / 2) (#214)
by Nelziq on Fri Aug 29, 2003 at 08:29:55 PM EST

The most brilliant thing about the price system is that it transmits essential information about value and scarcity. The utility of money then is to effectivly show the value of a given good (a price IS its value). Much of the underlying assumptions or intentions of people promoting "alternative currencies" is that want to remove the price-value connection and instead insert their own values.

[ Parent ]
Yes, but (none / 0) (#243)
by Ward57 on Mon Sep 01, 2003 at 01:38:54 PM EST

Is there anything wrong with localisation of currencies. It might seem (using information from the article) that in some cases the utility of localisation to the community outwieghs the superior mechanics of a monetary system. It might also seem that people prefer to have their time valued at a level much closer to the level at which others time is valued, as a guilt preventative. (This is a "non-rational" effect.)

[ Parent ]
The future of money? (3.88 / 9) (#69)
by jjayson on Wed Aug 27, 2003 at 05:16:09 AM EST

Corporate scrip is just a fancy way of saying gift certificate. I think the future came and nobody really cared for it.
Smile. =)
Decentralized money, two kinds (4.00 / 3) (#99)
by atreyu42 on Wed Aug 27, 2003 at 01:49:36 PM EST

The future is decentralized money. Two kinds of it:

And they are very different.

[ Parent ]
we need a kuro5hin credit card (nt) (3.50 / 6) (#77)
by circletimessquare on Wed Aug 27, 2003 at 07:21:58 AM EST

The tigers of wrath are wiser than the horses of instruction.

Will it come with (4.16 / 6) (#80)
by monkeymind on Wed Aug 27, 2003 at 08:12:00 AM EST

Frequent comment points?

I believe in Karma. That means I can do bad things to people and assume the deserve it.
[ Parent ]

Frequent Trolling Miles! (4.40 / 5) (#86)
by porkchop_d_clown on Wed Aug 27, 2003 at 10:09:09 AM EST

extra kickbacks, errr... "rebates", for the # of lines of rant tumeric posts in your articles!

You can't raise my prices. You can't build more power plants. You can't build more power lines. Why are my lights out!?!

[ Parent ]
no (3.00 / 2) (#87)
by circletimessquare on Wed Aug 27, 2003 at 10:15:43 AM EST

no one can approach lord troll tumeric's legacy, even remotely ;-P

but you do get bonus points if you actually stir lord troll turmeric, and get him to respond to your post... he seems to have been mute as of late, no?

The tigers of wrath are wiser than the horses of instruction.

[ Parent ]

+1 from me, + Paul Glover (3.72 / 11) (#98)
by ip4noman on Wed Aug 27, 2003 at 12:56:40 PM EST

Paul Glover, who invented Ithaca Hours, has just announced that he is running for mayor of Ithaca, and may also be the Green Party candidate for President.

This guy impressess the hell out of me.
I've been a vegetarian for 32 years. I don't ride in cars. I don't own anything. I rent an apartment paid entirely by Ithaca Hours. I consider myself wealthy if I can appreciate the beauty of the day. -- Paul Glover

Breaking Blue / Cognitive Liberty Airwaves
Does he sleep on the floor then? (5.00 / 1) (#150)
by drivers on Thu Aug 28, 2003 at 12:39:51 PM EST

Without a blanket, etc.? Does he rent them? Maybe he's borrowing them. I mean, he sounds like he's living out some of my ideals. Actually, no, my ideal is "enough" and no more... a few things to make life good but no more than that.

[ Parent ]
Maybe it's a furnished apartment n/t (none / 0) (#152)
by dipierro on Thu Aug 28, 2003 at 01:06:20 PM EST

[ Parent ]
Define 'enough' (nt) (5.00 / 1) (#192)
by LaundroMat on Fri Aug 29, 2003 at 11:14:07 AM EST


"These innocent fun-games of the hallucination generation"
[ Parent ]

Definition of "enough" (5.00 / 1) (#211)
by drivers on Fri Aug 29, 2003 at 07:19:30 PM EST

is determined by each person. Did a google search on "fulfillment curve" to get the point across better than I care to write myself: fulfillment curve. Most of this is stolen from the book "Your Money or Your Life" by Joe Dominguez and Vicki Robin. I recommend it.

[ Parent ]
I guess that means (none / 0) (#155)
by HidingMyName on Thu Aug 28, 2003 at 01:43:46 PM EST

He can't afford an ad. Too bad, he should buy one.

[ Parent ]
Problem - time treated equally. (4.33 / 12) (#111)
by Rich0 on Wed Aug 27, 2003 at 04:05:28 PM EST

One problem with these schemes is that they treat time equally and put no value on capital.  Keep in mind capital is more than just money in the bank or owning a big factory.  It can also be the fact that you spent 8 years of your life out of work studying for an advanced degree.

On the hour-donation system everyone has incentive to try to get away with doing the least labor-intensive task which takes time to do.  Dangerous activities are out of the question.  You compensate somebody equally for walking an elderly person to the market in suburbia with walking them down the street in the darkest ghetto in town at 2AM.

Why would somebody want to become a doctor?  They'd go in debt since they'd be in school for years and years on end, and when they get out they can perform surgery for the same benefit as walking said elderly person across the street.  Also - if the guy on the table dies due to negligence do they get compensated in hours by the court.  If I am owed life-expectancy*365*24 hours by somebody does that mean I can assume ownership of them as a slave?

How about quality of work?  If somebody does a minimal job for an hour should they get the same credit as a guy who does an exemplary job?

These like-with-like compensation systems work well for certain niches - where everybody is indeed doing comparable work (in terms of difficulty, danger, and capital required).  I don't think they'd work out in the real world where a grocery clerk is bartering his services with a demolitions expert.  

It isn't true w/ LETSystems (3.37 / 8) (#116)
by atreyu42 on Wed Aug 27, 2003 at 04:30:53 PM EST

First of all, your comment is about complementary community currencies, and not about scrip. Right?

One problem with these schemes is that they treat time equally and put no value on capital.

True. But I don't see it as a problem.

On the hour-donation system everyone has incentive to try to get away with doing the least labor-intensive task which takes time to do.

True with time dollars or Ithaca HOURS, but not with LETSystems. LETSystems is not based on time-donation, but in honor.

These like-with-like compensation systems work well for certain niches

True. Some currencies work better in some situations than others. I'd prefer to have my car repaired with LETSystems than with dollars/euros/whatever, because within a community being conned is less probable. Think the last time you screamed out because your car was bad repaired and you paid it with conventional money.

I don't think conventional money will disappear. We will have a lot of currencies in the future. LETSystems, time dollars, Canadian Tire Money, etc. And of course dollars/euros/whatever.

[ Parent ]
You have a point (3.25 / 4) (#160)
by Fon2d2 on Thu Aug 28, 2003 at 02:42:59 PM EST

But you are also ignoring one of the main tenants of such a time-dollar system. Basically that it introduces philanthropic tendencies back into society. Friends don't count pennies amongst friends, because friends are smarter than that. One hour of you watching my kids might be one hour of me helping you remodel your kitchen. Now if were neighbors, no big deal. We probably won't even make sure the hours were counted exactly. Hell, we probably won't even make sure we're doing the same amount of favors for each other. Socially wise people realize that arguments over such issues are counterproductive. Such people should also be able to realize that the use of something such as the time-dollar could be a way to introduce trust and communication back into a broken community. In that respect, I see nothing wrong with it.

[ Parent ]
There is something fishy here (4.58 / 12) (#120)
by sien on Wed Aug 27, 2003 at 05:18:06 PM EST

Can anyone get something reputable on the man or the subject? Something from a REAL paper or economics magazine.

It seems if you search the bookname or the guy you hit a bunch of links with the same quotes. You can check a review of his book at Amazon and guess what, there are paragraphs duplicated from the above article, which does not steal them as they are quoted, and from interviews with Mr Lietaer.

One of the interesting things about the articles is they all start off with his credentials, which is exactly what the great PhysicsGenius over at slashdot used to do.

Maybe something along these lines? (4.42 / 7) (#129)
by acceleriter on Wed Aug 27, 2003 at 06:44:47 PM EST

Private Money: Everything Old is New Again (pdf) from the Federal Reserve Bank of Cleveland

[ Parent ]
This guy is a fraud (4.42 / 7) (#162)
by sien on Thu Aug 28, 2003 at 02:50:34 PM EST

OK, I got curious, the following email exchange is with the centre in Berkeley where this guy allegedly was.

First email from me was to Center for Sustainable Resource Development at their email address.

I got the following reply:

From Leslie Correll ( at CSRD )
Hi Pete, He is no longer here, and the best bet is to try to reach him through his publisher. Sorry I cannot help. L/ Correll

But then I got this reply....

From: "Robin Marsh"
Subject: Re: Questions about Bernard Lietaer

He is not and never has been. A major miscommunication. Know nothing about him or his whereabouts. Sorry - Robin

[ Parent ]

Thanks for saving me the time (3.75 / 4) (#185)
by bankind on Fri Aug 29, 2003 at 05:03:14 AM EST

from showing how fucking shit this article is. Sure it is well formated, but what a load of junk. If this guy wanted to write about stupid ideas of economists he could have at least choosen someone partially reputable like Bob Mundell, who's campaign for a new gold standard is cookier than this one and more complicated, and therfore can make the referee appear smarter.

Christ, read a fucking dollar bill,


What's legal about imaginary bills? more importantly what does that have to do with a global currency crisis? and how can a person design a 'Convergence Mechanism'? Is a 'Convergence Mechanism' made out of bubble gum, snot, chicken wire and duct tape?

A man by the name of DeGrauwe would not be pleased with this essay. Same same Rudi Dornbusch.

"Insurgents are blowing up pipelines and police stations, geysers of sewage are erupting from the streets, and the electricity is off most of the time -- but we've given Iraq the gift of supply-side economics." -Krugman
[ Parent ]

FUD (2.33 / 3) (#186)
by atreyu42 on Fri Aug 29, 2003 at 07:42:04 AM EST

The Center for Sustainable Resources (www.cnr.berkeley.edu) is at the University of California at Berkeley (www.berkeley.edu). Read this page (http://www.berkeley.edu/news/berkeleyan/1997/0129/briefs.html):

Sustainable Development And the Money System

Dr. Bernard Lietaer, who while at the Central Bank of Belgium was involved in the design of the European Currency Unit, will speak on campus Feb. 3 in 103 Mulford, at 3 p.m.


His visit is sponsored by the Center for Sustainable Development.

And this has been also answered here.

[ Parent ]
Oh right, (5.00 / 2) (#189)
by sien on Fri Aug 29, 2003 at 09:21:05 AM EST

Well, he spoke there. Obviously he is a fellow. I have visited Stanford, Harvard, UNCH, perhaps I can also claim I am a fellow there.

[ Parent ]
It's more likely a mixup by the interviewer (5.00 / 1) (#222)
by Scrymarch on Sat Aug 30, 2003 at 02:32:15 PM EST

His publications in books alone stretch back to 1980 ... atreyu42's link does indicate he was associated with the centre, since you have less credentials than the many and various publications that have repeated his qualifications, I think the onus is on you to prove he is a fraud (beyond a single lazy email).  A search of the abstracts of economic papers for the last 20 years, perhaps?

[ Parent ]
Send the mail yourself (5.00 / 1) (#224)
by sien on Sat Aug 30, 2003 at 11:25:10 PM EST

Try sending some mail to the centre. Ask them if he was a fellow there. Do a google on his name, see where he says he is a fellow.

Look, here we have someone saying he worked on the conversion mechanism for the Euro but who says a lot of things that most normal economists would regard as dubious and even appear weird to an amateur.

My attitude is that you should go out and check for yourself, I'm happy to have this checked out. Is the author?

[ Parent ]

I believe (5.00 / 1) (#228)
by Scrymarch on Sun Aug 31, 2003 at 05:24:29 AM EST

... it was a real exchange of email, just not that it's sufficient evidence to show him a fraud.

[ Parent ]
Not quite (5.00 / 1) (#233)
by sien on Sun Aug 31, 2003 at 07:01:54 PM EST

This guys claims are impressive, in particular that he worked on the convergence mechanism for the Euro.

I was looking for a way to verify that but could find nothing so I searched for the only thing I could get easily.

Google his bio, you find this claim to being a fellow at this place. He isn't. If he really is who he says he is he would fix that mistake quickly.

The articles claim about how the amount of trading makes money unreliable is strange. Most economists would not say that, what it actually implies is a liquid market.

[ Parent ]

You forgot Flooz.com!!! (3.66 / 6) (#123)
by Hide The Hamster on Wed Aug 27, 2003 at 05:38:20 PM EST

Free spirits are a liability.

August 8, 2004: "it certainly is" and I had engaged in a homosexual tryst.

And YOU forgot beanz.com! (5.00 / 1) (#159)
by grouse on Thu Aug 28, 2003 at 02:40:13 PM EST


You sad bastard!

"Grouse please don't take this the wrong way... To be quite frank, you are throwing my inner Chi out of its harmonious balance with nature." -- Tex Bigballs
[ Parent ]

Inflation & theft (3.90 / 10) (#130)
by duncan bayne on Wed Aug 27, 2003 at 07:01:18 PM EST

The nice thing about being able to use private currencies is that, should the currency provider start to take your wealth through inflation, you can choose another provider.

This isn't possible when using Government-mandated 'legal tender' - see the article Economic Freedom and Interventionism for details.

Most people simply aren't aware how much wealth the Government has stolen through inflation over the years.

Lack of awareness (4.28 / 7) (#132)
by Entendre Entendre on Wed Aug 27, 2003 at 07:35:49 PM EST

I'd wager that most people aren't aware of the benefits of inflation, either.

I wonder if that's still the case in Japan.

Reduce firearm violence: aim carefully.
[ Parent ]

what benefits of inflation? (3.20 / 5) (#170)
by dh003i on Thu Aug 28, 2003 at 05:10:04 PM EST

There are no benefits of inflation. Inflation is, in fact, responsible for the boom-bust economic cycles. Money starts to become inflated, and thus entrepreneurs start making faulty investment decisions, investing too much money in capital (as opposed to consumer) goods. These malinvestments are revealed and wiped away during depressions. In regards to depressions, the more sudden and quickly they happen, the better, because malinvestments are wiped out quickly.

At the heart of the matter, inflation is <I><B>stealing</B></I>, no matter which way you cut it. It <B><I>STEALS</I></B> money from hard-working individuals by eroding their buying power, and redistributes it to bloated useless government projects.

Even if there were real benefits to inflation (there aren't, see the several inflationary recessions we've had), it is still unacceptable, because it is theft, which is an immoral violation of property rights (in this case, specifically, a violation of contract rights).

Social Security is a pyramid scam.
[ Parent ]

RE: what benefits of inflation? (4.00 / 1) (#190)
by synaptik on Fri Aug 29, 2003 at 11:01:02 AM EST

Are you a homeowner? If so, inflation is a lesser evil than deflation, because debts don't deflate (or inflate) with the currency. Who wants to go into debt for US $100,000 or more, only to find that their home is worth less in current dollars than what they owe the bank, due to deflation?

warning C4717: 'WORLD3D::operator=' : recursive on all control paths, function will cause runtime stack overflow
[ Parent ]

What about young ppl trying 2 buy a new house?(nt) (none / 0) (#195)
by atreyu42 on Fri Aug 29, 2003 at 11:28:11 AM EST

[ Parent ]
benefiting one group at the expense of others (3.50 / 2) (#197)
by dh003i on Fri Aug 29, 2003 at 11:44:43 AM EST

So, inflation is ok because it benefits debtors? What kind of perverted logic is this? Arguably, it doesn't even benefit debtors, because it still devalues what money *they* have, and makes it more expensive for them to buy goods. And, of course, there's the other side of it, the fact that inflation harms creditors. So, even if you point to this "positive" effect of inflation (helping homebuyers) it is negated by an equally harmful effect (harming creditors).

I'm also not arguing that the government should deflate the money supply. I'm arguing that there should be a free market on money, and that it be allowed to be controlled by the natural market-forces, and be backed by a real gold-standard.

Also, inflation arguably doesn't benefit debtors because there is nothing stating that a person who is a debtor will always be a creditor. Many people start out life as debtors and end up as creditors.

Siimply put, inflation as it currently exists (government printing out money) is nothing more than stealing and wealth-redistribution. All tax-payers are stolen from when the government prints out money, and then it redistributes that new money to various groups at the expense of others (e.g., government agencies and projects benefit, while the private sector is harmed; debtors benefit, while creditors are harmed).

Social Security is a pyramid scam.
[ Parent ]

I think his point is... (5.00 / 2) (#201)
by Fon2d2 on Fri Aug 29, 2003 at 01:43:50 PM EST

How can inflation be a conspiracy on the part of the bankers when banks mostly exist as creditors and inflation favors the debtors at the expense of the creditors?

[ Parent ]
banks steal from taxpayers in a more direct way (none / 0) (#202)
by dh003i on Fri Aug 29, 2003 at 02:02:45 PM EST

Banks steal from tax-payers in a more direct way than inflation: taxes. Banks FDIC-insured status is paid for by tax-payers; that is what allows them to invest to make a profit, with not nearly as much concern for the downside as they would otherwise have to face. They are also allowed to fraudulently avoid paying up their obligations to their customers, while still collecting the debt owed to them (as happens in a bank-run). This is also paid for by stealing from the tax-payers.

As for inflation, it is banks themselves that engage in the inflation of the money supply, at government beckoning. It benefits them so much as to outweigh any minor losses from debtors; they are the ones who get this new money, fresh to invest.

Social Security is a pyramid scam.
[ Parent ]

RE: benefiting one group at the expense of others (none / 0) (#205)
by synaptik on Fri Aug 29, 2003 at 04:36:53 PM EST

So, inflation is ok because it benefits debtors?
I was not intending to claim that inflation benefits debtors; I was claiming that-- for people with significant capital assets (be they heavily leveraged with debt, or not)-- deflation bites harder than inflation. Capital assets are in fact a natural hedge against inflation. As people migrate along the fiduciary spectrum from debtors to creditors, they should move the bulk of their holdings out of cash, and into inflation-proof assets.

Granted, this sucks for the poor, because they have less savings, and thus can't afford to move their nest egg to illiquid, value-retaining assets.

But, it seems to me that deflation bites everyone equally: the rich find that the value of their capital assets dwindle. And even those who are purely in cash would hate it: "Excuse me, sir? The US government requires us to remove 1 dollar out of every 100 from your savings account. But don't worry; we'll do the same to everybody, so it won't hurt you." Yeah, that'll go over well. :) (Although, I suppose government mandated deflation could first be implemented by tightening up credit. IANAFE.)

As to the third option (no inflation, no deflation): It seems few would disagree that this would be ideal. But, we still had inflation prior to the removal of the gold standard, did we not?

warning C4717: 'WORLD3D::operator=' : recursive on all control paths, function will cause runtime stack overflow
[ Parent ]

u clearly don't understand deflation (none / 0) (#212)
by dh003i on Fri Aug 29, 2003 at 08:10:07 PM EST

Deflation doesn't necessarily mean the government destroys a certain percentage of money. It just means that money becomes more valuable. That could be either by destroying it or by increased confidence in it. Likewise, inflation doesn't necessarily mean printing out money. It could be either printing out money or the money becoming less valuable, because of decreased confidence in it. What is good is to let the free market determine inflation and deflation. What is evil and draconian and clearly theft is for the government to artificially *create* inflation or deflation.

Social Security is a pyramid scam.
[ Parent ]

Huh? (4.00 / 6) (#134)
by dipierro on Wed Aug 27, 2003 at 08:43:24 PM EST

Why isn't it possible when using Government-mandated 'legal tender' to choose another provider? No one forces you to hold your assets in dollar bills. There are plenty of ways to hedge against inflation. Maybe it mattered back in the colonial days, but in today's global economy there is no real force behind the designation of a currency as "legal tender."

[ Parent ]
Only if the devaluation is not sudden (5.00 / 2) (#169)
by HidingMyName on Thu Aug 28, 2003 at 04:57:00 PM EST

If the devaluation is too quick (and well publicized) you won't be able to sell. Also, some things that may not be money but are instruments of wealth may be regulated (e.g. stocks, bonds etc.).

[ Parent ]
What does legal tender matter? (5.00 / 1) (#210)
by mindstrm on Fri Aug 29, 2003 at 07:09:08 PM EST

Legal tender means that if you owe someone money, they can require you to pay in that currency; they cannot take you to court for not paying a monetary debt via some other method if the legal tender was offerred. It's basic economic law... without something that is the official way to pay, chaos ensues.

You are free to keep your savings in euros, dollars, Venezuelan Bolivars, gold bars, bearer bonds, kegs of beer, old cars, or any other thing you want, and you are equally free to barter and trade with them. No law prevents you from using any of these to pay anything, so long as all parties agree.

People accept dollars in the US out of convenience.. to set up shop to accept gold, you then need a system to handle and move that gold, verify it's real, and so on.. and it's just not worth the trouble.

[ Parent ]

Inflation is neccesasy. (none / 0) (#215)
by Nelziq on Fri Aug 29, 2003 at 08:35:45 PM EST

If there is more people producing more wealth then you have to have more money so that the money to real wealth ratio remains constant. There is an ideal level of inflation for maintaining employment levels and economic growth. The economic results are objectively better than a situation in wich there is never any inflation.

[ Parent ]
that is such fucking bullshit (4.00 / 1) (#217)
by dh003i on Sat Aug 30, 2003 at 12:14:56 AM EST

The "money to wealth" ratio as you put it is irrelevant. Money simply represents value, lets say a certain weight in gold. As money becomes inflated, it can buy less gold.

The idea that inflation is necessary for the growth of the economy is complete bullshit. Inflation merely redistributes wealth from the many to the select few who are the beneficiaries of government spending. That you don't understand this is obviously a sign of your complete stupidity.

If inflation was uniform (that is, if the new money printed out was distributed proportionately to all those in the US depending on their wealth), then it would be completely irrelevant and harmless. However, it is not. It is taken from the many and given to government beurocracies and those endeavers that the government -- in its unending incompetence -- decides needs more money (usually social programs and war). Furthermore, those who get this new money earlier on benefit, as they are still paying on old prices with money they've effectively been given by stealing the value of money from everyone else.

The effect of this is terrible in two ways. Firstly, money is redistributed from useful and efficient private enterprise to wasteful and draconian govenrment projects, like welfare and war (welfare and warfare go hand in hand, hence the welfare-warfare state).

Secondly, the boom-bust cycle occurs. Because the money supply is inflated, for a time, consumers are fooled into thinking prices really are dropping. Thus, consumption will go up in unjustifiable manner. Enterpreneuers will start building more capital goods (goods meant for upline economic production), and less consumer goods. Eventually, the inflation will have to stop (the longer it goes on, the worse the depression), and when that happens the mal-investments will be recognized, and a correction is due. The mal-investments will have to be liquidated, and the quicker that happens, the sooner the depression will be over and the better off the economy will be.

Unfortunately, the government tries to tamper with the natural market corrective forces, thus worsens the depression. The Great Depression, for example, would have been short-lived had the government not tampered with natural market corrective forces.

Social Security is a pyramid scam.
[ Parent ]

Ah. Good. (1.00 / 3) (#154)
by porkface on Thu Aug 28, 2003 at 01:31:51 PM EST

This article finally gets the respect it deserves. Hoorah.
Squeal like a pig, boy!
Wonder if it set some records? (none / 0) (#157)
by tranx on Thu Aug 28, 2003 at 02:03:01 PM EST

Gotta rerate all the comments. Bwah!

"World War III is a guerrilla information war, with no division between military and civilian participation." -- Marshall McLuhan
[ Parent ]

Scarcety (4.33 / 3) (#156)
by malfunct on Thu Aug 28, 2003 at 01:48:45 PM EST

These non-competative currencies will only work so long as the resource the represent is not scarce. For instance in Japan where the people are helping elderly, the system will only work so long as there is always plenty of people willing to help. As soon as there are fewer hours of available help than there are hours of help required, the currency is competative and by getting an hour for yourself you take an hour away from someone else.

w00t, 95th vote, I feel special. (3.66 / 6) (#158)
by Fon2d2 on Thu Aug 28, 2003 at 02:30:59 PM EST

Seriously, though, I didn't know what to think of this article when I first read through it, but a second run through and a read of some of the Lietaer links is really opening up my mind here.

I do a lot of thinking about what money is and how it works. I have a book at home called the "Origins and History of the Federal Reserve" for Christ's sake.

So let's think about what money is. Money, as I see it, is really one of two different things, which I will call barter money and credit money. Barter money is just an actual physical medium of exchange, and is hardly ever used anymore, the most prominent example being gold. Credit money is basically I.O.U.s of some form, issued by one entity, but used by several. U.S. dollars are liabilities of the U.S. government that can be used to eliminate debt created by taxation. Basically you are using government credit to cancel government debt. And in the sense that paper currency is government credit, there is not much difference between a $100 bill and a $100 treasury bond. It's really just a matter of semantics: the T-bond earns interest, but can't be used as legal tender for typical everyday types of exchanges.

What this article is really trying to state is, why can't anybody create such credit? If you spend one hour helping me paint my house, then I should be able to credit you one time-dollar, such that anybody can bring one of these time-dollars back to me to get an hour of work out of myself. A credit-debt relationship can be created by mutual agreement between any two entities. The government doesn't need to have a monopoly on the creation of such relationships.

Now in our monetary system, we do have entities outside the government that are allowed to make their credit money indistinguishable to the general population from government issued credit money. These entities are banks. Thus in the U.S. we really have two kinds of money: state money (government issued credit money), and credit money (bank issued credit money). Bank issued credit cannot be used to pay government debts. It also cannot be withdrawn from the bank. All U.S. paper currency says "Federal Reserve Note", indicating it is a form of credit issued by the central bank of the U.S. (i.e. issued by the government). But as long as your money is deposited in the bank, they can use credit from entities beside the government to back up your account. An example of such credit would be a home equity loan or a mortgage owed to the bank.

A lot of people will tell you that the reason, or one of the main contributing factors, to the Great Depression was that we were on a gold standard. i.e. every U.S. dollar was backed by gold bullion. Thus when the depression hit, the Federal Reserve was unable to pump new money into the economy. To this day it remains popular wisdom that low inflation is necessary to keep the economy stimulated. Now I disagree with the idea that the gold standard exacerbated or even caused the Great Depression. We weren't on a gold standard then. We were on a gold exchange standard. Banks were still allowed to only partially use government credit to back up their bank accounts. That means there wasn't enough gold bullion to back all the deposits people had invested throughout the country. Think about it. If there were, why would there have been panic? Why would there have been a run on the banks? If every dollar saved in a bank was ultimately convertable into one dollar's worth of gold, the public's fears would have been quickly placated. There would have been no loss of confidence in the monetary system and money wouldn't have stopped flowing.

Other readers interested in such monetary issues might expect me to take up the Austrian School of Economics' argument here: that we should go to a 100% gold standard. They couldn't be more wrong. I've been turned off by authors such as Rothbard and their ludicrous conspiracy theories since I first studied them. Gold is just one commodity in a market of several commodities, and fundamentally, that's not what money really is. Money is more abstract than that. Money is just something owed to you. Money is credit. Period. End of story.

This story has helped point out the most blatantly obvious fact that I have been overlooking all along. If money is credit, than anybody can create it. And in fact I agree with Lietaer that that is exactly what we need. Right now, in the U.S. we see a very low willingness, especially amongst the young, to do any kind of charity or volunteer work. I never even considered it might be the monetary system exacerbating this problem. Consider the following quote from the end of the Lietaer interview:

"Assume that a Martian lands in Denver on the wrong side of the tracks. He ends up in one of the ghettos and finds that the houses are run down, the kids not taken care of, the elderly in trouble, and the trees dying. He sees all these things, and discovers that there are people and organizations absolutely equipped and ready to solve every one of those problems. So this Martian asks, "What are you waiting for?" The answer: "We're waiting for money." "What is money?" the Martian inquires. "It's an agreement in a community to use something as a medium of exchange." Don't you think he may leave the planet believing there is no intelligent life here?"

And just about sums it up. Plus one FP for this article.

You obviously missed accounting 101 (none / 0) (#161)
by jungleboogie on Thu Aug 28, 2003 at 02:47:37 PM EST

"credit" and "debit" are all in relation to banks, and THEIR accounts, not yours. When you "credit", you are losing money, not getting money. Except with a bank account.

[ Parent ]
No they're not (5.00 / 1) (#194)
by Fon2d2 on Fri Aug 29, 2003 at 11:25:59 AM EST

"credit" and "debt" are in relation between any two entities that make such an agreement. If I lend you $10, we now have a credit-debt relationship. And yes, when I credit you the $10, I am losing the money (temporarily), but you are the one going into debt. Please point out where in my original post I contradicted this.

[ Parent ]
huge logical hole in your argument (none / 0) (#171)
by dh003i on Thu Aug 28, 2003 at 05:28:25 PM EST

I've been turned off by authors such as Rothbard and their ludicrous conspiracy theories since I first studied them. Gold is just one commodity in a market of several commodities, and fundamentally, that's not what money really is. Money is more abstract than that. Money is just something owed to you. Money is credit. Period. End of story.

You stated some of the very things that Rothbard and others mention, yet you claim that isn't a conspiracy. Obviously, there's a huge hole in your logic. The fractional reserve system, where banks can claim debts owed them but not pay out their debts owed; and the government printing out money...these are both clearly conspiracies to steal from individuals. There's no two ways about it. The fractional reserve system is fraud, and the government printing out money is theft (also not that inflation is definitively the cause of the boom-bust cycles of the economy).

The reason why the gold standard is advocated is because of the superior qualities of gold. It is eternal. Gold buried at the bottom of the sea for thousands of years will be just as radiant as the year it sank. Gold is extremely pliable, and has exceptional conductive characteristics. These are characteristics which make gold very valuable.

But most important of all -- and this is something which is not unique to gold -- gold cannot be printed out. You can't "inflate" gold. True, it's value can change, but no agency can steal your money by "printing out more gold".

At the very least, the government monopoly on money needs to be eliminated. This places the government in a position to effectively steal all of our money. The government could print out a quantity of money equal to twice of what's currently in circulation, effectively stealing half of everyone's money. If there's a free market on money, various banks can still print out more notes, but consumers could switch to banks without the corrupt fractional reserve system and which did not inflate their money-supply (credit-supply).

You should read Mises' Theory of Money and Credit (unfortunately, it is not well-formatted [no pdf]).

Social Security is a pyramid scam.
[ Parent ]

I never said it wasn't a double standard. (5.00 / 1) (#193)
by Fon2d2 on Fri Aug 29, 2003 at 11:20:02 AM EST

I'm not going to read Mises entire treatise right now obviously but I have heard of it and will probably end up reading it someday. I have read plenty of other material at Mises.org, and I have read Rothbard's book "The Case Against the Fed". Rothbard really irritated me by claiming many things about the Federal Reserve without giving a proper explanation. It's been a while, but help me if I get this wrong. Rothbard's conspiracy theory goes a bit like this: the U.S. government and the American people are getting screwed. Ever since the major banking interests concocted their scheme on Jekyll Island and got their scheme passed into law, these banking interests have been in real control of the country. The Federal Reserve is able to increase the debt owed to it simply by issuing more money. The debt is so obscene that the Fed could easily own all the wealth in the entire U.S., or something like that. Collecting on such debt is not in the best interest of the wealthy bankers that own the Fed however. Rather, it's much more subtle if they simply live fat off the interest.

A few things here. First of all, the Fed can't create any debt that doesn't already exist in the open market. That means if the Treasury doesn't issue debt, the Fed can't acquire that debt. Second of all, the Fed can't collect on the principal in any meaningful way. That debt exists to back the money in circulation. If money is payed toward the principal, then the Fed is either selling debt back into the open market, or the debt is being retired. Either way it gets rid of the debt owed to the Fed and the money used to pay that debt at the same time.

Now, as for interest, 98% of the Fed's income in 2002 came from interest on government securities, but it payed 94% of that income back to the Treasury as interest on Federal Reserve Notes. So for 2002, this translated into 24.5 billion dollars in interest that was effectively nullified for the Treasury, and the ultimate benificiary of this is the taxpayers.

The bankers do have themselves in a sweet position though: 500 million was payed in dividends to member banks in 2002. The Fed doesn't even really control how much debt it holds though. It's policy is pretty much set up by interest rates, so it has to buy or sell according to those rates.

Also, about the double standard, that's what my original post was about. Fractional reserve banking is a double standard. If a bank were to default, it'd be bailed out by the FDIC. If you were to default, you'd be in deep shit. Also it's a double standard in that banks are the only entities that can create credit-debt relationships that make consumer backed credit (mortgages, etc.) indistinguishable from government backed credit (real cash money). That's partly why I thought it was a good thing this article brought up the idea of complementary currencies.

But even so, I don't agree that fractional reserve banking is necessarily all bad. Have you ever stopped to consider that it may increase the efficiency of markets? By localizing the capital of several disparate entities, banks can make that capital highly available and highly liquid. Thus capital is more available to the businesses and consumers that need it, promoting the flow of money and through that, the creation of wealth. This situation can be benificial to those who know how to take advantage of it. Right now, your savings account already earns interest, but in Rothbard's scheme, you'd have to pay to have your money (gold) safegaurded. People won't like that. I'll be willing to bet that most people don't keep the majority of their savings in bank accounts (FDIC insured deposits) anyway. Instead they're probably out there investing in things like stocks, bonds, and money markets so they can get their piece of the pie as well.

And well if gold is so important to you, then invest in it. But if you're investing in gold for those reasons, you might as well invest in stocks since stocks also represent actual ownership and not an investment in something tied directly to the monetary system. In the long run this *will* protect from problems with that system. See chapter two of Seigel's "Stocks for the Long Run" for a full explanation of this.

But anyway, just because something works a certain way, does not necessarily mean it's a conspiracy. Rothbard's argumentation was pathetic and poorly thought out, and worse, he failed to meet many of my objections. I was turned off by it almost immediately. Other material I've read has helped paint things in very different perspectives. Would gold really be best? Then I need a much fuller explanation of how. And I need other concerns addressed. Also, Rothbard's explanation of inflation and boom-bust (in "The Case Against the Fed") was about one paragraph, and not very convincing. I'll go back and reread it, but I remember it being very overly simplified.

[ Parent ]

haven't read Rothbard's case against the fed (none / 0) (#198)
by dh003i on Fri Aug 29, 2003 at 12:01:40 PM EST

So I can't comment on that aspect, nor is that specifically the concern here. Whether or not you dismiss that argument is irrelevant to the immorality of the current fractional-reserve system.

The ultiimate problem is that our entire banking system is completely morally (and financially) bankrupt. Because banks claim that you can get all of your money out at your desire, them holding a "fractional reserve" is fraud. The government created laws against calling into question the financial worthiness of these banks to cover their asses. If banks want to make significant profits and attract customers with higher interest rates, that will require a fractional reserve. Fine. But then they shouldn't be able to claim that people can get their money out at their will (which is clearly fraud).

Now, this fractional reserve system is backed by stealing from taxpayers. Firstly, taxpayers are stolen from for FDIC insurance. Secondly, the government steals from taxpayers by relieving banks of their obligations and bailing them out. If a bank-run starts to occur, the government steps in, allows the bank to close down its doors, thus not pay out their obligations to their customers. Meanwhile, the banks still collect on debts "owed" them. This is clearly criminal, corrupt, and immoral. Quite frankly, it is atrocious.

Regarding the inflation-caused business cycle, if you want detailed descriptions of that, you will have to look to essays and books written specifically in regard to it. Mises wrote a short essay, <a href=http://www.mises.org/tradcycl/austcycl.asp>The Austrian Theory of Trade Cycle</a> on it. Rothbard also <a href=http://www.mises.org/tradcycl/econdepr.asp>wrote an essay on it</a>. A more comprehensive analysis can be found in Mises, <a href=http://www.mises.org/manipulation/manipulation.asp>On the Manipulation of Money and Credit</a>.

Social Security is a pyramid scam.
[ Parent ]

On inflation (none / 0) (#206)
by Fon2d2 on Fri Aug 29, 2003 at 05:03:04 PM EST

The most common reason given for inflation is "too much money chasing too few goods". That statement is generally vague and confusing, but it implies a monetarist mindset. If we take the monetarist theory:

  • M = Monetary base (how many dollars actually exist)
  • V = Velocity (how many times a dollar is spent in a given year)
  • P = Price (of average item)
  • Q = Quantity (total number of all items sold in a year)
  • GNP = Gross National Product
And if we take the general assumption that V and Q remain relatively constant, then it follows that price inflation necessarily follows from inflation of the monetary base. I've discussed this point at length with the operator of this website and he disagrees with me. He argues something along the lines of due to fractional reserve banking, it is not possible to accurately measure the monetary base, and therefore the monetarist theory (MV = PQ) is invalid. But that seems a moot point to an Austrian economist since you'd be against fractional reserve banking anyway. And if prices were rising in contrast to a constant monetary base, then I can't get around how Velocity wouldn't be increasing, and I just don't buy that it increases that much. On the contrary, I have seen graphs that compare Consumer Price Index to the size of the Monetary Base, and they certainly appear to correlate very strongly. If I recall correctly, Stocks for the Long Run had such graphs in it.

But anyway, none of this is enough to claim that inflation is the root cause of boom-bust cycles. It's true that inflation can obscure the true value of goods in a market, and thus lead to periods of over- and under-valuation, but there are many other factors. Money and markets are a very psychological thing. There are systems of credit and debt interlaced all throughout are economy, so any psychological principle which is self-reinforcing (such as investor confidence) can lead to its own up-down cycles. That's not the only type of self-reinforcing aspect of the economy either. See How Recession Works for a more complete explanation. The point is that when the economy is down, regardless of inflation, it reinforces itself into that state. Likewise when the economy is up. So to simply say that inflation causes some malinvestment (something most people generally accept), is not enough to say that inflation causes boom-bust cycles.

I will take note of the articles you have pointed out on Mises.org and read them if/when I have time, but I will also like to point you towards another resource. If you have the time and patience, Origins of the Federal Reserve System is a very thorough discourse of the state on banking in the late 19th and early 20th centuries. Such history isn't as straightforward as you might think. I'm currently in the midst of reading it for the second time so I can get a much better grasp on its subject matter. Nonetheless, I have found this book far more informative than anything I have read so far by Rothbard or Mises, and at least on the first read through it did not give me the impression of any kind of major conspiracy on the part of the banking interests.

[ Parent ]
Where? (5.00 / 1) (#209)
by mindstrm on Fri Aug 29, 2003 at 07:01:57 PM EST

 Because banks claim that you can get all of your money out at your desire, them holding a "fractional reserve" is fraud.

Where do the banks claim this?  
Furthermore, I speak english... and that does NOT read the same way is "We keep 100% of the cash on deposit in reserve".

Only kids think banks do that.. everyone else learns in school that it doesn't work that way. If you went through half your life thinking it was some other way, perhaps it was from watching TV, or just never really investigating how it works.. it's NOT a secret, or a conspiracy, or a fraud.

Banks play a delicate game, and anyone CAN go get their money out.. any bank that ends up working otherwise ends up out of business (and unable to do further harm) fast... that, plus FDIC mean you CAN get your money out any time.. there is no fraud.

[ Parent ]

That was a good article (none / 0) (#265)
by Fon2d2 on Tue Sep 02, 2003 at 11:21:41 AM EST

I just read "The Austrian Theory of the Trade Cycle" and thought it was a very good article. It helped me understand the Great Depression a little better. I think Mises is pretty spot on about the causes and the circumstances of the Great Depression. But I'm not sure those arguments really apply today. The extension of bank credit really isn't the same thing as the monetary inflation we see today. Banks today are limited in their credit expansion by fractional reserve and capital ratio requirements. It could be argued that in time the economy simply adjusts to this newfound credit and in the long run it makes no difference, so long as the ratios of the reserve requirements are not changing, which they're not. That gets us back to the argument that fractional reserve banking increases the liquidity of money and credit, which is good. It was lack of such liquidity that was partly at the root of the Great Depression. Now you could take the argument that any amount of fractional reserve banking artificially increases the amount of available credit, and thereby always leads to malinvestment, but that is not Mises argument in this article. He is simply saying that a constantly increasing supply of credit, which we no longer have, leads to the boom bust cycles. He's really talking about constant changes in bank policy.

There are some things of note in this article though. Mises claims that credit wasn't being extended due to fear of monetary inflation by the government, a very straightforward argument. But it was the day we announced we were leaving the gold standard the stock market jumped 9% (6 more the following day). So does that really just represent another period of credit expansion on the part of the central bank? Are we really in just another super-extended period of credit expansion? Is that why we always say it is important to have inflation? Or have we really created sound monetary policy? Tough to say. It'd be interesting to analyze the dot-com bust and try and tell how much of that malinvestment was really related monetary policy.

[ Parent ]

Currency crash (none / 0) (#216)
by ZorbaTHut on Fri Aug 29, 2003 at 10:41:44 PM EST

But most important of all -- and this is something which is not unique to gold -- gold cannot be printed out. You can't "inflate" gold. True, it's value can change, but no agency can steal your money by "printing out more gold".

. . . at least they can't *yet*.

See A History of the Aluminum Cap of the Washington Monument. The thing I'm interested in is down in Sidebar 1. Summary: Aluminum used to be really really expensive. Now it's not.

See The New Diamond Age. Summary: Diamonds used to be really really expensive. Soon they won't be.

Do you *really* want to bet your currency system on the belief that nobody will ever find a way to physically turn lead into gold?

(Yes, I realize they're different atomically. My point still stands. Just because we don't know how to do it now doesn't mean we won't learn.)

[ Parent ]

hahhaha (none / 0) (#218)
by dh003i on Sat Aug 30, 2003 at 12:21:45 AM EST

If someone ever finds a way to turn some other element into gold, it would be prohibitively expensive, because it will necessarily involve either fusion or fission. At least if we base our currency on gold, there is certainty that inflating the gold supply will never be economical. It's a hell of alot more certain that gold won't be inflated than that money won't be inflated.

Social Security is a pyramid scam.
[ Parent ]

Sea water (none / 0) (#235)
by paranoid on Mon Sep 01, 2003 at 01:30:39 AM EST

There are shitloads of gold dissolved in the ocean. Anyone with a decent fusion power plant or with a genetically-engineered bacteria can easily collect that gold and turn it into neat gold bars.

[ Parent ]
yea, that's realistic (none / 0) (#236)
by dh003i on Mon Sep 01, 2003 at 01:52:57 AM EST

Fusion power to convert other atoms into gold -- the cost of doing such would be much greater than the benefits obtained, thus it wouldn't happen. Genetically engineered bacteria to extract gold from the ocean? That's not really inflation, but simply uncovering unused gold. It's also not realistic now or anytime in the future. For example, lets say we can engineer bacteria to take up gold. So we releast them into the ocean -- then how do we collect them again from the ocean?

Please don't use nonsense like this as examples.

Social Security is a pyramid scam.
[ Parent ]

Yes it is inflation (none / 0) (#260)
by Fon2d2 on Tue Sep 02, 2003 at 10:25:38 AM EST

That's why the capitalists of the late nineteenth and early twentieth centuries favored the gold standard over a silver standard. They were against monetary inflation and the supply of gold was much more stable. If we were on a pure gold standard, and you deposited your gold bar in the treasury to receive your gold certificate, that would be monetary inflation.

[ Parent ]
yes, but it's a moot point (none / 0) (#261)
by dh003i on Tue Sep 02, 2003 at 10:57:54 AM EST

Since the idea he proposes is absurd.

Of course, we could try using something other than gold as the standard, something which we think less of is likely to be discovered in the future than gold. But what such thing is there? Is there any metal out there where there's less of it undiscovered than there is of gold, and that actually has similar qualities of gold that make it something extremely valuable in-and-of itself?

There are couple of reasons why gold is used. Firstly, as you said, it is pretty stable. At current and expected future rates of "gold-inflation" (the discovery of new gold), that is completely insignificant compared to the inflation we get today. Secondly, gold is valuable in-and-of itself. It is ornamental, more malleable than any other metal, and has excellent electrical conductive properties.

So, for example, one could advocate that we use diamonds as a standard instead of gold. However, diamonds, I would argue, have much less intrinsic value.

Social Security is a pyramid scam.
[ Parent ]

PS: yes, but it's a moot point (none / 0) (#262)
by dh003i on Tue Sep 02, 2003 at 10:58:57 AM EST

Btw, while gold and silver and other real currencies have intrinsic value, the dollar has no intrinsic value what-so-ever.

Social Security is a pyramid scam.
[ Parent ]

You are uninformed (none / 0) (#274)
by paranoid on Mon Sep 29, 2003 at 11:17:11 AM EST

Engineering bacterias for such purpose is a matter of a few decades. You are simply ignorant about what was already done (engineered bacterias to process waste, to generate fuel, etc. As for gold, just do a search for "bacteria gold" and you'll get more than enough information.

When you say "not realistic... anytime in the future" about something as simple as that, you just should how deeply ignorant and backward-thinking you are. Your question about collecting bacteria back just reinforces my confidence in your low intellectual level.

BTW, after you read up on bacterias, check the definition of inflation. It seems that you will disagree with most of the economists in the past 4 centuries about what happened in Europe after the discovery of the New World. You probably believe that it wasn't inflation, since all the uncovered gold was simply unused in South America.

[ Parent ]

Uh, wrong. (none / 0) (#174)
by NoMoreNicksLeft on Thu Aug 28, 2003 at 07:51:05 PM EST

Money is abstract work. It is me laboring for an hour, doing one thing or another.

Sure, it's abused in any number of ways. Many people get an obscene amount of money while performing no work, others perform an obscene amount of work and recieve nothing in return.

But only because so many people insist that it is "value". Of course, their ideas of value almost always seem to involve screwing money or material wealth (the product of work) out of others who are at a disadvantage.

Value is subjective, but work objective. Why not use work at the definition of money?

Do not look directly into laser with remaining good eye.
[ Parent ]

beer tokens (5.00 / 1) (#179)
by Fuzzwah on Thu Aug 28, 2003 at 10:53:55 PM EST

I agree; money is stored labour. We all know the best way to reclaim it is by trading this stored labour in for beer.

The best a human can do is to pick a delusion that helps him get through the day. - God's Debris
[ Parent ]

Fractional Banking System (4.25 / 4) (#163)
by CoolName on Thu Aug 28, 2003 at 03:16:43 PM EST

Banks hold a small fraction in their vaults of what is lend out by banks. A bank may lend out a billion dollars but only have one hundred million in the vaults. This is why bank deposits must be insured. The fractional banking system in essence creates money, by increasing the turnover of money. The new currencies suggested may be more humane and have other advantages in spots but since these 'new moneys' are disconnected from lending institutions these currencies will be bit players in the currency world. Fractional banking practices increase the velocity of money and without a substantial turnover in these new currencies which comes from lending institutions using a currency these new currencies will be destined to fill niches which albeit may be very important on occassion. In the last century individual banks could print their own money. There were a host of difficulties which the current central banking system was intended to address. To address these difficulties these new currencies would essentially have to join with the central banking system and basically then disappear.

"What does your conscience say? -- 'You shall become the person you are.'" Friedrich Nietzsche

So you use a bank for the alternative currency (5.00 / 1) (#165)
by mcherm on Thu Aug 28, 2003 at 04:14:27 PM EST

I used to live in Ithaca NY, and I'm familiar with the Ithaca Hour. It is supposed to be equal to 1 hour of time... if I spend 2 hrs fixing your drainpipes, you pay me 2 Hours. It is also, by definition, equal to exactly $10 USD. That is a requirement of the US IRS (that there be a fixed and specified exchange rate to dollars), so that transactions in Hours can be taxed (but you have to report it yourself).

Well, in Ithaca, lots of places accept payment or partial payment in Hours. Local stores will often accept Hours, even for goods like food, clothing, and other materials. And there is even a credit union that will allow you to deposit (or withdraw!) your money in Hours. So alternative currencies CAN be used in a banking system, but it's unlikely to work unless it's a LOCAL banking system, such as a credit union.

-- Michael Chermside
[ Parent ]

fractional reserve should be illegal (2.55 / 9) (#166)
by dh003i on Thu Aug 28, 2003 at 04:19:10 PM EST

Think about it, fractional reserve is really a fraud. Banks claim you can get out your money at any time, but that clearly isn't true because of fractional reserve. If they only hold 10% in cash, then them claiming that they can give you your money at any time is patently false (e.g., bank-runs). What needs to be done is to eliminate central banking, eliminate fractional reserve, eliminate nationalized currencies, and allow banks to issue their own currencies, which would compete on the free market. All currencies would, of course, be backed 100% in gold. If the banks want to have fractional reserve, then they should have to clearly state that they may not be able to give you back all of your money at once.

The worst atrocity of the fractional reserve system is that it allows banks to collect debts "owed" to them, while not paying debts they owe. If there is a bank run, and everyone is demanding their money from the bank, the bank can't pay up (because they only hold a fractional reserve of that). The government then allows the banks to close their doors, and prevent anyone from getting their money. So, the banks have been effectively relieved from paying what they owe. In the meantime, the banks continue collecting debt from people who've borrowed money from them. This is government-legalized crime.

Finally, we need to eliminate government-backed insurance of banks. If bank-deposits are insured by the government, there is no motivation for banks to make prudent investment decisions. Instead, they will invest aggressively for maximum profits, and let the losses be absorbed by the US tax-payer, who pays for this insurance.

See Rothbard and Mises on currency:

On the Manipulation of Money and Credit

The Theory of Money and Credit

What has the government done to our money?

Taking money back

Introduction to the Theory of Money and Credit

Mises on Money

Social Security is a pyramid scam.

Eh? (3.66 / 3) (#173)
by the on Thu Aug 28, 2003 at 07:20:04 PM EST

there is no motivation for banks to make prudent investment decisions
Because, as we all know, (1) banks don't care if they have to make a call on their FDIC insurance and (2) companies never mismanage their funds if they're no insured. What kind of fantasy world do libertarians live on? Why do they think the insurance was created in the first place? 'Cos it has been, in actual practice, not some moron's deluded dreamworld, a cause of numerous disasters.

The Definite Article
[ Parent ]
moron (4.00 / 2) (#177)
by dh003i on Thu Aug 28, 2003 at 10:36:26 PM EST

FDIC insurance is paid for by *THE TAXPAYERS*. Thus, it is theft by the government and banks. Period. End of discussion. This creates a natural incentive for them to invest in more aggressive investments, all the while claiming to consumers that their money is safe and sound, that statement only being valid because they can steal from taxpayers to cover their asses.

Social Security is a pyramid scam.
[ Parent ]

But that has nothing to do with fractional reserve (5.00 / 1) (#227)
by BCoates on Sun Aug 31, 2003 at 03:27:24 AM EST

Assuming you are correct that FDIC is paid for with taxes instead of charging the banks for it, why not just argue for the simplest solution, making banks (indirectly, their customers) pay for the insurance instead?

Also, the credit union I keep most of my money at posts a financial summary right in the lobby, it is completly obvious what is happening with my deposit.

Benjamin Coates

[ Parent ]

Fractional Reserve and Private Currency (none / 0) (#176)
by brianscott on Thu Aug 28, 2003 at 08:46:34 PM EST

What needs to be done is to eliminate central banking, eliminate fractional reserve, eliminate nationalized currencies, and allow banks to issue their own currencies, which would compete on the free market.

This was already done in the U.S., prior the Fed. It resulted in over-issuing of currency and inflation.

Also, if the fractional reserve system is eliminated, then banks would just spend all of there money, instead of most of it (or at least and exorbatantly larger amount.) Or if you mean that all the funds of a bank should be reserved (as opposed to a fraction), then banks would not make money, there would be no incentive to run a bank, and that sector of the economy would become extinct.

[ Parent ]
gold-standard ring a bell? (4.00 / 4) (#178)
by dh003i on Thu Aug 28, 2003 at 10:46:57 PM EST

The gold standard puts a check on issuing. So does competition. If bank A inflates its money (thus devaluing the deposits of it's customers), its customers will switch to bank B.

What I mean is *exactly* that banks should have to reserve *all* of the money you deposit, if they are to call themselves "banks" and claim that they can pay you your money back. If a bank has a fractional reserve, and urges you to put your money in it, saying that you can get your money out at will, then it is clearly engaging in fraud. Period. End of discussion.

Thus, true banks with 100% reserves would only really be subsidary services of mutual fund companies like Fidelity and Vanguard, designed to offer their customers with additional service, thus compete against other investing companies (e.g., Fidelity has "cash reserves").

The "fractional reserve" system is more than you foolishly believe it to be. it is the entire system set up to defraud individual's of their money, where banks only need retain a small pitance of the money deposited, can "guarantee no losses", say they can repay at will, are insured by theft from US taxpayers, and can be relieved by the government of paying their obligations to their *own* customers while still collecting debt. No matter which way you look at it, this is completely corrupt.

If a company wants to maintain a fractional reserve, they'll have to say that, and state that under various conditions, they might not be able to return the money immediately or at all. If there is a bank run, the bank will be bankrupted because it won't be able to pay out it's obligations. This is a good thing. They should also have to pay the burden of their own risks, not spread that burden on to taxpayers. In other words, they should have to pay for their own insurance, not be subsidized by taxpayers.

Niches for different banks with varying levels of fractional reserve and investment aggressiveness will be implemented depending on the mixture of conservative to aggressive individuals. More aggressive individuals will want a smaller fractional reserve and more aggressive investments, so they get more yearly interest. Less aggressive individuals will want a larger fractional reserve and less aggressive investments, so they have more security. Some will want to forfeit a little yearly interest for more insurance protection, others won't. It's called the free market.

Social Security is a pyramid scam.
[ Parent ]

100% reserves (5.00 / 3) (#183)
by jmv on Fri Aug 29, 2003 at 02:48:36 AM EST

Want to have a bank with 100% reserve? You can get that at any bank. It's called a "safety deposit box". Otherwise, what kind of a bank do you have when it's allowed to take (borrow) people's money, while not being allowed to lend any? Isn't the whole purpose of a bank to lend money?

[ Parent ]
not necessarily (none / 0) (#199)
by dh003i on Fri Aug 29, 2003 at 12:08:13 PM EST

I'm not mandating that banks have 100% reserve (by the way, you're charged a fee for a safety-deposit box).

What I'm saying is that our current banking system is fraudulent and morally corrupt.

Banks keep a fractional reserve of your money in cash. They then claim to customers that they can get their money out of the bank at whenever they want. This is clearly fraud. It would be no different than me stealing a little bit of money from you, investing it, hoping I make a profit, and then returning your original money to you. That, my friend, is a crime -- whether or not you pay back the money.

If banks are to have a fractional reserve, then they should have to *clearly* state that under certain circumstances (e.g., a bank-run), they may not be able to give you back your money, because their reserves will have been depleted.

Furthermore, banks should *not* be protected from bank-runs by the government. This is a corrupt system where banks are allowed not to pay up their obligations, but still collect on debts owed them. Also, banks should not be insured at the expense of US taxpayers via FDIC-insurance. That is theft.

Social Security is a pyramid scam.
[ Parent ]

Tinfoil hats. (5.00 / 2) (#208)
by mindstrm on Fri Aug 29, 2003 at 06:47:03 PM EST

If you read up a little more about economics, you'll see how you are absolutley not looking at it the right way.. there is far more to it.

Now, first, let me say, I do agree banks have too much power.. but that's almost unrelated.

The banks are not comitting fraud. First of all, the bank DOES give you your money when you ask for it. Right? I've never had a problem, and neither has anyone I've known.. and these banks are public corporations, and we can usually see what kind of financial shape they are in.

Second, where does the bank claim they are holding 100% of the deposit for you... You won't find it, because they don't.  That's what kids think; you learn in school banks DONT work that way (or you should have). You learn about the FDIC or other country's insurance programs for banks.. insuring up to, say, $50,000.  Ask anyone with more than that, and they iwll most likely KNOW to spread their money around, because over that amount it is at risk.

Thirdly, you can quite easily find banks that will hold all your cash in reserve. You will pay larger fees and find banking more restrictive. Why? The bank can't make money off your deposit.. service is their only income.  They also don't pay interest on deposits.

All the things you are asking about regarding what a bank should clearly state is PUBLIC KNOWLEDGE, and available from the bank upon request. Only little kids think banks hold all your cash in reserve, because they don't know what a bank really is.

Lots of people don't know how the economic system in the US works.. but it's all publicly available.. how the Fed works, how the banks work, etc.

You think it's a crime for the taxpayers to insure each other against loss of banked money? You seem to think you can separate your current economic system from the banks... - you can't... it's not that simple. Not without completely changing the country and how it works.  Your money is fiat currency in the first place... it's based on the work of an american over his lifetime, something like that... so ultimately, yes, you insure each other against such a loss because without that insurance, everything would break down.

You need to get past the very simple view of what money is.. money is not what you want it to be, and hasn't been for a very, very long time.

[ Parent ]

again, theft (none / 0) (#229)
by dh003i on Sun Aug 31, 2003 at 12:29:20 PM EST

Perhaps you didn't hear me clearly the first time: FDIC insurance is theft, because it is paid for by the tax-payers. It shifts the burden of insurance away from those who should incur it (specific banks and their specific customers) and onto everyone else, many who might not incur it (e.g., people who invest most of their money). Your argument is morally bankrupt, because it relies on FDIC-insurance, which is paid for by stealing from the tax-payers (either through taxes or inflation). You can't say, "oh, our current fractional reserve system is ok because everyone can get 50k out (and can diversify among banks)", because that argument inherently relies on the government stealing money from the tax-payers.

Again, though some do, I am not completely arguing against fractional reserve. It does provide benefits to bank customers (higher interest). However, it should *not* be supported by the US tax-payers through FDIC insurance. Each bank, and their customers, should pay for that insurance themselves, in proportional accord. Of course, the benefits of fractional reserve are completely insignicant compared to inflation. What percentage do you get on a savings account today, or even a money market account? Less than 1%. Inflation is 2-3%.

Your argument is also circular, because it is the government that causes inflation by printing out more money. This is why the government's stranglehold on currency should be eliminated, and currency should be privitized. Bank-coalitions or individual banks would print out their own gold-backed bank-notes, and individual's would be free to switch from a bank which inflates its note-supply to one which doesn't; or to choose banks which have policies stating that they won't inflate their note-supply.

As for your non-sense about a fractional reserve being necessary to keep the economy moving (e.g,. keep money invested in enterprises), that's bullshit. Individuals will choose the right level of investment for their personal preferences, and many will voluntarily choose fractional-reserve banks. Others will diversify their money between aggressive and conservative investments, depending on their preference. It's up to individuals to decide, not you. Integrity in their fractional reserve system will be enforced because there will be no government safety-net. And, of course, individuals would be free to choose banks which obligated themselves not to inflate their note-supply.

You should read some of Rothbard's work on the banking system, because obviously you don't understand it.

Social Security is a pyramid scam.
[ Parent ]

MattressBank (5.00 / 1) (#234)
by Kadin2048 on Sun Aug 31, 2003 at 09:25:10 PM EST

The banking system used to work in almost exactly the way you describe, and it led to major problems. The eventual resolution of those problems was the creation, by the U.S. government, of the FDIC.

The FDIC wasn't created, as you allege, as a way to allow banks to rob poor mom-and-pop investors of their savings; it was created as a protection for small investors whose banks went out of business. This is unfortunate but happens, especially with small, local banks. If a bank lends heavily to a particular industry or geographic area (think of a local bank in the midwest, for example), and suddenly all of it's borrowers go bankrupt (drought, bad harvest, dust boll, whatever) the bank runs a great risk of going under as well. In the '30s, this happened, and many people lost their life savings in the process. The FDIC was created to protect small investors, not corporations, not banks, against catastrophic, unforseeable loss. It is funded mostly by premiums paid by banks on the amount deposited (used to be 8.3 per $100 deposited, now it's more complicated) and probably taxpayer dollars as well, but overall it's a worthwhile investment.

Without the FDIC to spread out the risks inherent in borrowing and lending money, many people would not deposit their earnings, making it unavailable for loans to businesses and individuals (think of mortgages). This was the problem during the recovery from the Depression--after the failure of the banking system just a few years earlier, nobody wanted to put their hard-earned cash into an unsecured account. So the government created an insurance policy for small investors, operating on the principle that even though one or two banks may fail, when the loss is spread amongst all banks, it's insignificant.

It's the exact same principle behind fire insurance, auto insurance, etc., concepts which originally came from shipowners' associations. There isn't anything particularly devious or immoral there: just the spreading-out of risk. The only difference is that while no one makes you get fire insurance for your house, you are required to get FDIC insurance on your savings account. One could argue that this is immoral, but it's basically a moot point because you can get an unsecured account at most banks (it's called a money market or investment account) which, while slightly different from a savings account, is different in two significant ways: it's not secure, and it pays higher interest.

Today you can have any of the things you are proposing: you can have a 100% secured account, backed in hard currency or precious metals, that earns no interest and probably costs you money (and basically has little advantage over putting your money in a box); you can have a traditional "savings account" where your money is lent out to others, and the government backs your deposit; or you can play it fast-and-loose and get an unsecured account, where you may lose money but stand to make much more. Given that we already have all these choices, I fail to see how your plan (which would remove one of them) would be a positive step.

[ Parent ]

do you have problems reading? (none / 0) (#237)
by dh003i on Mon Sep 01, 2003 at 01:58:49 AM EST

(1) I didn't propose eliminating any choices consumers get. I proposed upfront full disclosure.

(2) I did propose the elimination of the FDIC. It is funded by tax-payer dollars, which means it is funded by the government stealing from the people. Banks and individuals should insure their own money, not shift that burden over to the taxpayer. There is no such thing as something for nothing; government programs are net negatives, because they shift money from productive uses to unproductive ones.

(3) Your understanding of the Great Depression is flawed. The actions the government took during the Great Depression lengthened its duration and increased its severity. See America's Great Depression.

Social Security is a pyramid scam.
[ Parent ]

You're not helping your case (none / 0) (#239)
by Wildgoose on Mon Sep 01, 2003 at 03:27:09 AM EST

I largely agree with what you are saying, but when valid points are made, (e.g. Federal Deposit Guarantees being society insuring itself against problems with its currency) then you should appreciate that this is a good point. It's necessary because there is a single national currency, and that was deemed necessary in the past for very good reasons. I don't have a problem with a single national currency, (my own country England has the oldest national currency in Europe, and possibly the world - it was set up in 928AD). The real issue is that of fiat currencies. Currencies that aren't backed by anything real are the real con trick.

[ Parent ]
"society insuring itself" (none / 0) (#242)
by dh003i on Mon Sep 01, 2003 at 12:50:27 PM EST

Your argument is morally bankrupt, because it relies on stealing from everyone to insure banks; the stealing is either done through taxes or (worse) inflation.

No-one would use currencies not backed by gold, so your concern is irrelevant. Having a single national currency is not good, because it eliminates free-market competition and gives the government the power to inflate the money-supply with no check. This is bad because inflation means the government stealing from everyone to give to it's select few chosen, redistributing wealth from productive private operations to unproductive government operations. Furthermore, it is inflation which causes the business cycle (read on the Austrian business cycle...you will find that it adequately explains and predicts every depression we've had in the US...furthermore, Mises, using his theory of the business cycle, predicted the Great Depression years before it happened).

Currencies are not created by the government. They are only created by the voluntary interactions of individuals. The real fiat currency is the dollar, the pound, and the euro, none of which are backed by gold. They are simply paper, with no intrinsic value. Trying to logically understand how they have some value is impossible, because they don't. Some idiots here have talked about them as if they were "credit", representing a "certain amount of labor". But who's labor? What labor? Person A's labor may be more productive than person B's, and person A may be doing something different than person B. The only real currency is that which voluntarily arises among men as something having intrinsic value; and the best example of that today is gold (it has numerous qualities which give it great intrinsic value). You may be interested in this article.

Social Security is a pyramid scam.
[ Parent ]

National Currencies (none / 0) (#245)
by Wildgoose on Mon Sep 01, 2003 at 01:52:32 PM EST

Try thinking whilst you read.

I expressly didn't say there should be only one single currency within a country, only that there is nothing wrong with a "National" currency - this could float quite happily against all the other competing currencies, but would be a useful means of converting between those different currencies.

Nobody would be forced to use that currency, just as nobody is forced to speak English. But it makes a useful last resort.

And if that national currency was a real (not "fiat") currency, i.e. it was directly backed by a commodity such as gold, silver, or kiloWatts then how can the government inflate the economy by printing money? They have to first have the commodity, and thus by definition are then entitled to print their notes.

You keep posting links to mises.org - I take it you actually understand what they are saying when they say they want a Gold Standard, and also why they are saying it?

[ Parent ]

wow, you really have no understanding of the govt (none / 0) (#246)
by dh003i on Mon Sep 01, 2003 at 02:56:51 PM EST

1The government cannot be trusted with the power to print money. A national currency backed by the government, along with the necessary central bank, can coexist with a government, in theory; however, not in practice. The government is an insatiable entity which will always take measures to increase its own power.

In practice, it is impossible for the government to adhere to a real gold standard, which is why all currency needs to be privitized. What the gold standard means is that the government "has" say 1,000,000 pounds of gold. Now, if it issues 10,000,000 dollar bills to act as exchange units for that gold, then each dollar is effectively 0.01pounds of gold. Lets say that at the starting condition, all of this money is privately owned, and the government owns none of it (but simply has the gold in some vault).

Now, if the government never issued another dollar (or only issued a new dollar when destroying an old dollar), then this would be a real gold standard. However, if you expect that to happen, you are nuts. The government cannot exercise such self-restraint. When it wants more money, and doesn't want to go through the bad press of raising taxes, it will simply print out say 10,000,000 new dollar bills, for itself. Now, what happened is that the government has halved the wealth of individuals, and stolen 500,000 pounds of gold.

Any "gold-standard" that the government creates will invariable behave in this non-standard manner. That is, it will behave as a moving gold standard. Inherently, thus, it will be worthless, because it will not represent fixed amounts of gold (something which has great inherent value).

A relevant exerpt from the article I cited would be useful:

It is the central bank, and only the central bank, that works as the government's money machine, and this makes all the difference. Now, it is not impossible that a central bank can exist alongside a gold standard, a lender of last resort that avoids the temptation to destroy that which restrains it. In the same way, it is possible for someone with an insatiable appetite to sit at a banquet table of delicious food and not eat.

Let's just say that the existence of a central bank introduces an occasion of sin for the government. That is why under the best gold standard, there would be no central bank, gold coins would circulate as freely as their substitutes, and rules against fraud and theft would prohibit banks from pyramiding credit on top of demand deposits. So long as we are constructing the perfect system, all coinage would be private. Banks would be treated as businesses, no special privileges, no promises of bailout, no subsidized insurance, and no connection to government at any level.

This is the free-market system of monetary management, which means turning over the institution of money entirely to the market economy. As with any institution in a free society, it is not imposed from above, dictated by a group of experts, but is the de facto result that comes about in a society that consistently respects private-property rights and encourages enterprise.

Money is not something chosen by social managers but the consequence of economic development, as society moves from barter to indirect exchange. One commodity that is widely in demand comes to operate as a medium of exchange, a commodity for which any good or service can be traded with the expectation that this commodity will be demanded by others in future exchanges. Precious metals, gold in particular, have traditionally served as the money of choice.

Social Security is a pyramid scam.
[ Parent ]

Government (none / 0) (#259)
by Wildgoose on Tue Sep 02, 2003 at 03:34:49 AM EST

And who enforces the contract law that prevents the private banks you are so enamoured of just walking off with your money? Or perhaps just devaluing their issued currencies?

Oh, wait, that would be the government.

And how is government paid for?


That's right. Taxes.

The price we pay for living in a civilised society.

Your arguments are inconsistent. Basically, you are failing to follow through the logic of what you yourself are saying, and failing to understand what is being said at the website you quote so extensively.

May I suggest you read up on the concept of the "Social Contract". It's what being the citizen of a state is fundamentally all about.

If you don't want part of the contract, feel free to emigrate. But whilst you retain your citizenship you also retain your contractual rights and responsibilities.

[ Parent ]

arguably.. (none / 0) (#263)
by dh003i on Tue Sep 02, 2003 at 11:06:20 AM EST

all of that can be provided for by private enterprise. Private companies paid to enforce the law, different ones to interpret it (judges). Even if you don't take that view, the government still has gone beyond it's bounds. The only acceptable role of the government would be to enforce the law and protect individual's rights. Funding could be obtained by methods other than stealing via taxes.

The only reasonable social contract is one where property rights are given absolute respect; hence, a system where your money is taken from you by coersion is unjustified.

Social Security is a pyramid scam.
[ Parent ]

by the way (none / 0) (#247)
by dh003i on Mon Sep 01, 2003 at 03:01:20 PM EST

You still don't address the fact that tax-subsizied FDIC insurance is theft, and that any endeaver which places the power of currency creation in the government's hands increases the power of a corrupt regime (before you start babbling about how the US is the most free nation on earth, that may be true; but getting a D when everyone else gets an F is still failing).

Social Security is a pyramid scam.
[ Parent ]

Okay.. (none / 0) (#250)
by mindstrm on Mon Sep 01, 2003 at 06:11:33 PM EST

First, lets' stop calling it theft.  It's taxes, and the government does things with taxes. Did they lie to you about it, or was it in the budget? If they secretly take tax money and pay into the FDIC, then it's theft. If they do it openly, it's not theft... okay?

The power of currency creation has always been in the government's hands, whether it was issuing Gold or Silver notes, or the current fiat currency.

It sounds to me like your argument goes much deeper than whether or not FDIC is theft....

If the FDIC insurance was paid by all banks together, and no tax money was used, instead, and your banking fees were higher to compensate, would you feel that solved the problem?    It doesn't, right?
Who said anything about the US being the most free nation on earth?

Some of your arguments are good, but really, you are coming off sounding like a raving conspiracy lunatic who has read "The Creature from Jekyll Island" one two many times, and is pre-ready to refute every sane argument.

Now, you please answer a point.

All of the systems you WANT to have already exist. You can buy gold, you can get savings accounts that are NOT fdic insured, you can get accounts at banks that keep 100% of all cash on deposit, or banks that keep some kind of commodity as 100% insurance on their deposit (precious metals usually). You can get transferable bearer bonds that are backed by various solid corporations and represent real ownership of debt or other assets. You can put money or gold or jewels in your mattress. You can get together with some armed guards, and build your own co-op vault where everyone can keep their cash.

All the systems that you want to exist, do exist, and nothing forces you to keep your savings in an FDIC insured US dollar account... so what are you suggesting?

[ Parent ]

ethics 101 (none / 0) (#252)
by dh003i on Mon Sep 01, 2003 at 06:30:12 PM EST

Whether you wait until I've turned my back and secretly take my money by stealth, avoiding any confrontation, or point a gun in my face and take it from my right in front of me using force -- it's still stealing. Period. End of discussion.

The government does both. It steals money from you via stealth, using inflation; it also steals money from you outright, using taxes backed by the threat of violent force against you.  Either way, it is theft. Just because a powerful organization with weapons is the one stealing your money doesn't somehow make it anything other than theft. You seem to have a hard time understanding this basic concept of theft. No-wonder this nation is filled with so much crime, when I own government supports stealing.

Let me clarify from you:

If I sneak into your house, and steal your wallet and the money within, along with other valuable -- that's theft.

If I break your house door down and point a gun in your face, demand you give me your valuables -- that's theft.

If I, as your neighbor, get together with all of your other neighbors, and we "democratically vote" that we should all take your property, either by stealth or outright force, that's theft.

If I, as your fellow countryman, get together with all of your other countrymen, and we elect a political official to serve as "the official representative of the state", and he takes your property, either by stealth (inflation) or outright force (taxes), that's theft.

So, with that in mind, it is clear that FDIC insurance, which is subsizied by tax-dollars, is paid for partially by theft. Thus, it is immoral. If banks had to pay for their own insurance, that would solve the moral problem.

The other problem is that the current system of government-sponsored inflation has created the current business-cycle disaster. The only way to eliminate that is to prohibit the government from having anything to do with currency-creation or regulation, and to completely privitize currency.

Under a privitized currency system, the natural and logical thing which would happen is that different banks would probably standardize practical things (like the size of their bank-notes, for convenient wallet-storage), and would all issue bank-notes in terms of how many pounds of gold they were redeemable for. Cancel that, how many grams or kilograms of gold they're redeemable for. As long as we're talking about bettering humankind, we might as well eliminate obsolute useless measuring standards based off of the length of some dead jerk-off-king's foot. So, different banks would issue their own trademark banknotes, but all of them would be in standardized units (e.g., maybe Chase' note is blue and says 1kg gold, and maybe M&T's is red and says 1kg gold). This is the type of system the free market would push towards, because no rational human being is going to use bank-notes that can be halved in terms of their gold-weight redeemable value.

It is necessary to destroy the current government-, no taxpayer-subsized system to eliminate the government's hold over the money supply, and allow the free market to compete in currency (there would probably also be bank-notes redeemable in diamond-weight, silver-weight, emerald-weight, platinum-weight, etc, and maybe even in defined units of "purchasing power"). The only way the current boom-bust cycle can be stopped is if the government is completely denied any control over any currency.

Social Security is a pyramid scam.
[ Parent ]

Okay, I finally get your argument. (none / 0) (#255)
by mindstrm on Mon Sep 01, 2003 at 08:47:18 PM EST

You think the government is all crooks, taxes are thievery, and that the current government needs to be completely destroyed. Why not just say that in the first place instead of ranting like a loon?

[ Parent ]
ethics 101: PS (none / 0) (#253)
by dh003i on Mon Sep 01, 2003 at 06:36:49 PM EST

PS: I'm sure you will try to jump through all kinds of contortions to rationalize that taxes aren't theft. However, they clearly are. Indeed, they even have their origins in theft, when warlords would impose taxes on their citizens to support their conquering ambitions. All throughout history -- from pharohs, to caesors, to kings, to dukes, to czars, to Fuehrer's, to "elected" President's and congressment -- taxes have never been anything other than a thug taking money from those he is powerful enough to extract it from by force. Simply because people in the US can choose who's going to be their thug and steal money from them doesn't change the fact that it's theft.

Social Security is a pyramid scam.
[ Parent ]

Stealing? (none / 0) (#249)
by mindstrm on Mon Sep 01, 2003 at 05:55:28 PM EST

So, taxes are stealing. I see.

Where do you think the money from those taxes came from? Where do you think the money to pay your salary came from?  The system as a whole may have problems, but arguing that it's THEFT makes you sound like a raving lunatic.. my argument is circular? So is the system.

What percentage do I get on my savings account? About 5%, and yes, that's the one in US dollars.

The real argument should be with fiat currency.. not where the insurance comes from.  The Fed lends money to the banks, bank lends it to you, and so on.

I'm not at all defending the current system as adequate.. but simply stating that the problem is "THEFT" of taxpayer money is absurd.

If you want to talk about the vastly-out-of-proportion increase in money supply in the last 30 years, go ahead,or how this all affects inflation, or how it concentrates power in the wrong places, with the banks, instead of with Congress, where it arguably should rightfully be, go ahead.. but don't just spout off about how it's THEFT.

If the banks were as varied as you say, things would be worse, not better... people would lose their savings because of a risk they didn't know better than to take, because it was called a bank.  Banks would go broke more often. Banking fees would be higher. Many things would change. Economics woudl get far more complicated.

[ Parent ]

the money to pay my salary? (none / 0) (#264)
by dh003i on Tue Sep 02, 2003 at 11:18:51 AM EST

Comes from my employer, not the government.

I highly doubt you get 5% on your savings account. Currently, even money-markets are earning less than one percent on average. Saying you get 5% makes me very suspicious that you are lying out right; either that, or you have many millions of dollars and get a bank-preferred savings account (in which case, good for you).

You and other advocates of communistic central-planning always have some rationalizations for why we shouldn't have a free market, or should subsizide and regulate it. Yet, that is the same kind of interventionist crap that is crippling the economy of Germany right now.

Under the system I suggest, everyone would be free to choose what they wanted. It's called freedom. The rational person would choose a bank that issued notes corresponding to certain weights in gold, with contractual guarantees that they would continue to correspond to those weights in gold. This would probably become an industry-standard (you know, there are standards that competing companies in industries develop, without any government intervention at all). Yes, there would be banks that would issue fiat notes, but they would be called on to redeem in gold by other banks, and would quickly go under before their operations got off the ground. The state's job isn't to baby-sit (you will find an interesting correlation between welfare and warfare within government).

You also offer no real repudiation of my point that taxes are theft. Simply saying, "that's absurd" doesn't cut it. I believe I was very clear. Taking the property of anyone else either by force or stealth, alone or in a group, single-handedly or by democratic vote, is theft. The entire system of taxes evolved from corrupt despotic warlords, who, to achieve their ambitions, stole money from those they brutalized.

In the old days, with pharohs, caesers, and kings, the way it worked was that one man who had control of an army would use that force to steal money from those he ruled. He called this theft "taxes", rationalizing it by some non-sense of a fee due for protecting the people (never-mind that he was the people's greatest enemy, and that he benefitted much more from the bargain than they did). Now, it works much the same way, except these despots are elected. Simply being democratically elected does not in any way make the act of theft any less unjust. If I live in a neighborhood of 10, and steal from one person, that's theft. It's still theft if I get together with 8 out of the other 10 people and we "democratically vote" that I should steal money from one person, and redistribute it to the rest.

Your entire belief-system is based on one immoral premise: that theft is ok.

Social Security is a pyramid scam.
[ Parent ]

Bank branches are nice (5.00 / 1) (#213)
by pulnimar on Fri Aug 29, 2003 at 08:12:34 PM EST

Having the ability to cash everyone out at a moments notice (which you seem to be asking for) in "US currency" (not in a bank fiat) would eliminate the ability to have multiple branches.  This would also eliminate letters of credit between branches (aka wire transfers, money orders, ATMs, etc...).

Banks can currently borrow money from the Federal Reserve to meet "bank-run" needs (1.25% annual or-so currently, haven't paid much attention).  This would probably take about the same amount of time as transferring funds between branches of a bank (for most large banks) under your scheme.

[ Parent ]

The banks don't promise (5.00 / 2) (#200)
by Ward57 on Fri Aug 29, 2003 at 12:08:23 PM EST

to give you your money on time, they just almost always do because it's good commercial practice. They can close the doors for a few weeks while they withdraw some serious money from the stock markets.

[ Parent ]
Sure. Let's just go back in time. (5.00 / 1) (#207)
by mindstrm on Fri Aug 29, 2003 at 06:35:30 PM EST

Cause that's how it used to be. It sucked.

Yes, you can look at it and say banks get to collect interest, and that's not fair, wah.....

What you need to realize is that at that level, it's not the same thing as you owing me a couple dollars.. its' what DRIVES the economy.. what makes things move. The need to pay back interest is what keeps things moving.

In the days of a gold standard, the government had no control over the economy.  Sure, they had control of people, they could tax them.. but not control and regulate the economy.

The gold standard made sense in a time of exploration.  How much gold a country had represented the amount of resources they could throw at exploration, the amount of spare labour. There was a drive to get more gold, through trade, or exploration, or conquering.

Now, such a system does not provide a good drive.. we can't go out discovering tons of new gold mines. Sure, they are there.. but it just doens't make sense.

Oh, I know it's far more comlicated than that.. but really, money represents something.

If there is a run on the banks, and the banks ultimately can't pay off their debts, the banks go BROKE. The FDIC pays off the 50k per account max insurance the banks have, and that's that, the bank is no more. They can't just close up shop and refuse to pay.
Those limits on cash reserves, like the 10% one, serve as a limit. If there was no limit, banks would loan money forever, and we would have rampant inflation.
What do you want.. banks to hold all money in reserve? (whether it's based on gold or not is irrelevant). 100%? Okay. You can get such a bank account.

- You will pay much higher bank fees. The bank does not make money off it's holdings; therefore it has to make money directly from you.

- How does new money get injected into the economy? How do you regulate the cash supply?

The current system allows the country as a whole to determine how to share up it's value, and spread it around. If you want to keep your money in gold, you are still free to do so.

[ Parent ]

Its really a hard problem (5.00 / 2) (#225)
by nuntius on Sat Aug 30, 2003 at 11:25:32 PM EST

Fractional banking is morally evil, but pragmatically it solves a lot of problems.

Today, you go to the bank, deposit some money, wait, collect interest, and withdraw it when you want to.  This is possible because of fractional banking.

Without fractional banking, things become harder.  You deposit your money; if you do not explicitely loan your money to the bank, then they must assume that you will demand it back at any time.  Therefore, your money can not be invested; it cannot earn interest; it deflates the economy.

If you want to earn interest, then you must make an explicit loan to the bank.  This loan must specify the length of time for which you will not touch your money so that the bank may lend it out during that time.  If you withdraw early, you must pay a penalty (really, you must borrow your money back from the bank).  If nobody wants to borrow from the bank, then your money still may not earn any interest.

In essence, the challenge is to design a system where deposited money can automatically earn interest.

Fractional banking was proposed as a system which smooths out the rough edges.  By not requiring the banks to have all their client's money, it allows them to invest a large percent of it at any given time, and shift things around behind the scenes as needed.  This system has a tendency to create imaginary money.

The opposite solution would be a banking system where big players would leave large amounts of money in the bank which they could never withdraw but only gain interest from.  However, this is unattractive to most investors and would have a tendency to capture money.

Neither of these is attractive; by my memory, Rockefeller and friends struggled with this a hundred years ago and chose the former, with a "federal reserve" to bail out banks which stretched too thin.  It puts all our eggs in one basket; but at the same time, it vastly simplifies banking.

By the way, most bank account legalese does have fine print saying you can't always withdraw everything at once.  That's why they have the signs "FDIC insured for $10,000" or whatever value it may happen to be.  What that sign means is that, in case of a rush on the bank, the Federal Reserve will bail out the bank for up to $10k per account - no more.  This number was chosen to be reasonably high and also low enough to avoid depleting the Reserve.

[ Parent ]

I'm not completely opposed to fractional-reserve (3.50 / 2) (#226)
by dh003i on Sun Aug 31, 2003 at 12:40:28 AM EST

I just think that banks should have to say upfront what the implications of a fractional reserve really are: that you may not be able to get out all of your money when you please, or at all. Also, backing up the fractional reserve with the government means stealing from tax-payers, which is morally evil. Your arguments as for inflation are only relevant because the government is given a monopoly on currency and can print out money at will, effectively stealing money from everyone else (wealth-redistribution).

The solution to all of this is to create a free market on bank-notes. Banks could print out their own gold-backed notes, and choose on their own fractional reserve policies. If they printed out more notes and inflated their note-supply, their customers would switch to other banks which don't do that.

Social Security is a pyramid scam.
[ Parent ]

Inflation doesn't need gov't backing (none / 0) (#248)
by nuntius on Mon Sep 01, 2003 at 03:10:06 PM EST

Think about it - what causes inflation?  An increase in the supply of money relative to the the supply of goods.

Fractional banking does this without printing new money.  You deposit $100 in the bank.  Your neighbor borrows $90, which the bank takes out of your account.  The public now believes it has $190 when in fact only $100 of "hard" currency really exists.

Hence we get inflation from "imaginary money".

As for the idea of letting banks print out their own money - you can't be serious.  This led to riots in early American history; its a scam that beats out stock manipulation hands down.  By the time customers realize what's happening, its too late; their savings are gone; they can't just "change banks"; they have no money left.

Therefore, the government needs to have policing authority over banks; this leads to the need for a banking standard; this gets us back to where we are today.  Banks don't _have_ to use fractional banking; they just all choose to.  I think the feds would be highly interested in a bank which avoided fractional techniques; I'm just not sure they would have many customers.

[ Parent ]

fractional reserve does not lead to inflation (none / 0) (#251)
by dh003i on Mon Sep 01, 2003 at 06:21:31 PM EST

When you "borrow" $90, you are perfectly aware that it's coming from someone else. In a pure gold-standard system, assuming $90 is redeemable for 0.9pounds of gold, you would effectively be borrowing say 0.9pounds worth of gold from someone to use to pay for some current expenditure, upon the condition that you return say 1pounds of gold in a year. This is not inflation. Inflation is when a bank has say 100 pounds of gold, and issues 100 bank-notes, each redeemable for proportionately for the gold; if it then issues another 100 bank notes, then that is inflation, because now each bank-note is still redeemable for it's proporation, but that is halved.

As for your nonsense about customers and banks, customers are free to choose banks which clearly state that they won't print out any more bank-notes, or that your 1 bank note will *always* be redeemable for say 0.1 pounds of gold. Banks which do continually inflate their money-supply will be called on by other banks to redeem in gold, because no-one will want to hold a bank-note that is going to be worth half as much tomorrow as it is today. Thus, other banks will call upon these banks to redeem, they won't be able to, and they will go bankrupt. These types of fraudulent operations will be shut down before they ever get off the ground.

I suggest you read the article I mentioned in my above post to understand the problems of government-currency. The creation of government-currency and the elimination of a real (fixed) gold-standard has a horrible record, compared to the previous gold-standard. Furthermore, it has created the business cycle.

Social Security is a pyramid scam.
[ Parent ]

Trying to keep this civil (none / 0) (#254)
by nuntius on Mon Sep 01, 2003 at 07:10:08 PM EST

Look, I was trying to have a discussion - to offer feedback and achieve a refinement of thought.

Now you are referring to my thoughts as "nonsense".

In fact, a little research shows that you regularly start flames with people and mod their comments down.  That is poor etiquette.

Yeah, you're a college student at a good shool and want to try out all the new ideas you're getting exposed to.  Great!  Just slow down, ponder what others on the web have to say, and realize that you're a newer fish in the pond.

Maybe with time, you'll get better at promoting growth (in yourself and others) and not just arguing.  Beating others down with words is childish; you can only gain strength and allies through persuasion and compassion.

[ Parent ]

relevance? (none / 0) (#257)
by dh003i on Mon Sep 01, 2003 at 11:11:37 PM EST

I'm blunt, and will not refrain from saying what I think. If you can't deal with others calling a spade a spade, then I'd suggest you grow a backbone. When I think something is non-sense, that's what I'm going to say. I'm not going to sugar-coat anything, or dignify ideas that are ridiculous. When I see something that is bullshit, that's what I'm going to say, no matter who it offends. That means I'm not going to beat around the bush when stating my opinions about the absurdity of religion (scientology in particular); nor about the absurdity of the idea that the free market can't provide exceptional banks, if unhampered. Since you fail to mention anything relevant, I have nothing further to say.

Social Security is a pyramid scam.
[ Parent ]

Little Correction on fractional reserve (5.00 / 1) (#256)
by muonium on Mon Sep 01, 2003 at 10:26:26 PM EST

I think you've missed the point here a little bit.

The banks can give everyone their money at anytime simply by writing a check to the reserve bank and asking it to provide real physical currency in exchange. The key factor that allows banks to operate with a fractional reserve is that their share of all the loans in the market is roughly equal to their share of all deposits. If they lend out more than they get back, then they end up oweing money to the other banks which they have to pay interest on. If this goes too far then they go broke. So a run on a bank is only bad for a bank because they suddenly loose their share of deposits. They may refuse to give you your money, but only out of self preservation, not because they can't get it.

[ Parent ]

Yeah, sure (2.66 / 6) (#167)
by Col Klync on Thu Aug 28, 2003 at 04:46:01 PM EST

Excellent article with lots of great info.  One problem, though - the central problem: I don't think George Soros, Alan Greenspan and the Queen of England really care about all of this.  Like they're going to roll out of bed one day and say, "Hmmm, this global hegemony we have going is really great at making us rich, but maybe we should replace it with something more fair for everyone."  

It's like the war in Iraq: how many billions is it costing the American people?  How much is it costing the Bush family, Haliburton, or Unical?  The whole world knew a "better" way to handle that situation, but that doesn't matter one bit in the end.

A good friend once pointed something out to me: if a system is in place long enough, and it's not accomplishing its stated aim, eventually you have to conclude that the system was never set up to accomplish the aim that was stated, but actually serves some other purpose.

The systems described in this article are all great. I hope they continue to flourish.  But, I'm sure that if they ever achieve any success, they will be shut down with the full force of the law.  Just ask any Texan who knows their history.  I would love to see an article on K5 that solves this little dillema.

One last closing thought: if any currency is likely to replace gold, Treasury Notes, or Euro's in the next 100 years, it will  probably come from General Electric, not from the Green Party.

We don't need them (George Soros et al) (none / 0) (#172)
by atreyu42 on Thu Aug 28, 2003 at 05:34:07 PM EST

Excellent article with lots of great info. One problem, though - the central problem: I don't think George Soros, Alan Greenspan and the Queen of England really care about all of this. Like they're going to roll out of bed one day and say, "Hmmm, this global hegemony we have going is really great at making us rich, but maybe we should replace it with something more fair for everyone."

These are decentralized systems. We don't need the Fed nor the ECB to change the euros and dollars with LETS. We can create our own LETS (or time-dollars, Ithaca HOURS, etc.) and partially forget worrying about conventional money.

[ Parent ]
fraud. /nt (5.00 / 1) (#175)
by rmg on Thu Aug 28, 2003 at 08:17:59 PM EST

_____ intellectual tiddlywinks
[ Parent ]

Guy Dollars (4.00 / 5) (#182)
by Bryan Larsen on Fri Aug 29, 2003 at 01:55:57 AM EST

Me and me friends sometimes used to use "beers" as alternative currency.

1 beer = small favour = ~$5.  

1 case = 1-2 hours of labour = ~$20

I'd scrawl "good for 1 beer" on a piece of paper, and sign it.   I'd never know who was going to redeem it, nor how many hands it passed through before being redeemed.

Of course, they were called "beers", but were good for anything similar.  A "case" got traded in for a meal as often as it was turned into a case of beer or bottles of wine.

It worked fairly well.  It was very casual and low-pressure, so worked better than money.  And it reduced the stress of the "favour economy" where the people with cars and special skills did more favours for the people without who couldn't really reciprocate easily.

The biggest problem was people losing those pieces of paper.  But redemption without the paper was as easy as "you owe me a beer, Bryan".

And after redeeming too many, you lost track anyways.  :)

We don't use it any more.  We all have real money now, and time is a lot more precious to us than money.


Virtual Money (4.00 / 2) (#196)
by drtrogg on Fri Aug 29, 2003 at 11:33:02 AM EST

My roomates and I had a system like that during college except we called it 'virtual money'. Rather than doing all that pesky math and splitting each bill - one person would pay various bills in full. The unwritten rule was that someone else did it next time and we'd keep track of ballpark figures. In the end things tend to wash out and if they were not it tended to be pretty obvious and it was easy to fix.

We had a very small number of people involved and we were all pretty honest with each other so that helped. I have a feeling this would work well as long as there are not any idiots around trying to complicate things by exploiting the system. This same issue is where a lot of these other systems start running into trouble.

The Cash money resigned itself long ago to having idiots exploit it. That's why it is perceived as working.

Idiots. Always the Idiots.

[ Parent ]

In all seriousness (2.00 / 1) (#204)
by muyuubyou on Fri Aug 29, 2003 at 03:54:05 PM EST

If I started taking notes for every favor, what kind of friend would they consider I am?

Favors are done for free and expecting nothing in exchange.

Just FYI: you have no friends.

That "beer, small favor, 1-2 hours of labor" currency would be OK for people you know (people in your "community") but they're not exactly friends.


[ Parent ]

no friends (none / 1) (#273)
by Bryan Larsen on Wed Sep 24, 2003 at 10:35:21 PM EST

Favors are done for free and expecting nothing in exchange.

If you've been mooching favours for years without giving back, you're the one without friends, buddy.

In polite western society the rule is more like "expect nothing in return, but always return".


[ Parent ]

Ebay (3.25 / 4) (#184)
by Bryan Larsen on Fri Aug 29, 2003 at 03:00:41 AM EST

Economists do a lot of their work in a theoretical world where any good or service can be frictionlessly converted into dollars, and those dollars can be frictionlessly turned into any other good or service.

If we lived in this world there'd be a lot less people talking about alternative currencies.

But there are (at least) three sources of imperfection in the world.

The first problem is that you must find someone with money who is willing to trade your good for money, be he a broker or the end user. In poor communities, people with money are rare and/or exploitive, so this places an arbitrary barrier on trade. This is the problem solved by complementary currencies: money can be created in exchange for anything of value.

The second problem is that many systems impose large frictional costs on the system. Sure, middlemen sometimes provide a service, enabling transactions that would not have otherwise been made, but in other cases they are simply for historical, no longer relevant reasons. Of course, the government is also a huge source of friction with their taxes, employment laws, environmental regulations, et cetera. Some alternative currencies seek to minimize this problem. Alternative currency systems designed to avoid the government's cut are generally very illegal. :)

The third problem is pricing: somebody with power can impose a price on others. Some alternative currency systems work outside of the regular systems, affecting the balance of power so prices may (or may not be) more fair. No voluntary exchange is completely unfair: you can always choose not to take part in the exchange. However, if the price is different than what it would have been in the absence of power, one side of the bargain "wins more" than the other. It's still a win-win situation, but it may seem a little Pyrrhic.

Alternative currency schemes may be useful in systems with these problems. But EBay may be an even better solution: by creating a global market, it ensures that there is no lack of money in the system. It cuts out a lot of middlemen, minimizing transaction costs, and it puts both buyers and sellers on a fairly level playing field.

Alternative currencies may have other benefits, but Ebay (and its ilk) may be a better solution if these are the problems you're trying to solve.


Low transaction costs on EBay? (5.00 / 1) (#230)
by mjfgates on Sun Aug 31, 2003 at 01:16:00 PM EST

Transaction costs on EBay are huge. EBay itself charges about fifty cents in fees to sell even the cheapest items, shipping is at least $4US, and the cost of moving the money is either about seventy-five cents (cost of buying and mailing a money order), or four percent (PayPal fees). For small purchases, this is simply overwhelming-- trying to sell anything with a retail value of less than twenty dollars simply isn't worth it.

[ Parent ]
ebay (none / 0) (#272)
by Bryan Larsen on Wed Sep 24, 2003 at 10:15:15 PM EST

Yep, you're right.  I'm sorry if my post implied EBay is a panacea.  EBay is headed towards a natural monopoly because of network effects.  This is very dangerous situation.

Like the other two major American tech monopolies (Microsoft and Google), there is major potential for harm.


[ Parent ]

Capital? (3.66 / 6) (#187)
by pvanheus on Fri Aug 29, 2003 at 08:56:46 AM EST

I browsed all the comments on this article, and I'm kind of stunned, though not exactly surprised, that no one has mentioned Marx's 'Capital' (aka. Das Kapital), which is exactly on the topic of money. The first part of this book is all about money, and in particular the relationship between money, capital and power. As the interview mentioned, most economics textbooks don't bother to deal with the nature of money, but only deal with its use. That has pretty much been the case since the late 19th century, as far as I can gather.

The sources Marx draws on in Capital are largely the 'Classical' economics (David Ricardo, etc) and their predecessors, who were writing at a time when the domination of the world by money (as opposed to say, feudal codes) was something still new enough to merit investigation.

Admittedly, Marx's style isn't to everyone's taste, and he weaves argument together with elements of polemic, but then again, the book is at least as readable as Larry Wall's rather quirky 'Programming Perl'. :)

Unfortunately, Marx's name is enough to turn a thread into a flamefest, but I just thought kuro5hin readers should have a chance to open their minds a bit and engage with someone who thought the question of money through pretty darn thoroughly.

Then, another book worth reading on a particularly powerful nexus of modern money is Doug Henwood's 'Wall Street', which you can order here. In that book, Doug touches on the local money question as well.

Unfortunately, I don't have it at hand, but Rosa Luxembourg wrote a decent critique of local currencies back at the start of the 20th century. I'd agree with Lietaer that money is "an agreement within a community", but I think books like Karl Marx's and Doug Henwood's, though written more than 100 years apart, show exactly how forceful the imposition of that 'agreement' can be. Thus, Lietaer's argument for private currencies fails to convince me since it pays far too little attention to the realities of power which underly the imposition of money in its current form.


I've looked at both, it's not as readable [nt] (none / 0) (#220)
by tlhf on Sat Aug 30, 2003 at 10:59:18 AM EST

[ Parent ]
Money is a failed system (none / 0) (#278)
by nodes on Mon Feb 02, 2004 at 12:55:24 PM EST

This essay has spent a long time simmering in my consciousness and its time to set it free. Why? Because I'm about to surrender to money, to "join the system," "play the game" and seek money for my software.

The software, located at http://metamind.us, is all about creating a quality discernment system so we can "find the good stuff and tell everyone." It's the exact opposite of advertising; we will promote good ideas, products and politicians regardless of whether they pay us.

That's revolutionary and while I get a lot of lip service for the idea and the endeavor, there is very little money. The money is held by the rich, the corporations, and the government so that is where I shall now turn for support. That is the surrender I accept as "prudent and necessary." This is the way I am "selling out" to money. First, however, I shall tell the truth about money. It's the least I can do.

Why do I say that money is a failed system? Well, consider what needs to be done at the highest levels of social analysis. We need to provide a way for people to get their basic needs .... food, shelter, clothing, health care, education ... and money has become the single unifying method for accomplishing these things. We could simply provide them free-of-charge but then how would our needs be met? Money forces us to require money. It's a positive feedback loop. The more money you want, the more money you need. Of course, there is never enough money to do what needs to be done by design.

Money is artificial scarcity. It's what keeps the people in line. It's a form of social control. Money has failed to provide us with freedom while all the while contending that money is the path to freedom. And it seems to be true when you have money. But it is illusion since one man's freedom is obtained by enslaving other men. Money is deception.

A hundred years ago you might have been able to apply for a spot of land in Kansas or somewhere and move there, plant a few trees, and own the land. That was called the Homestead Act. But it doesn't exist anymore as far as I know. Now you need money if you want to have a home. There is no other option.

Similarly, you need more money every year for property taxes. Taxes keep going up even if they come down. The Bush administration's claim that "it's your money" is entirely false. It's our collective debt and we will pay in the future for the irresponsible fiscal behavior of the present. It's a question of WHEN your taxes will go up ... now or in the future.

Money has failed to provide for basic human needs. If the objective of money is to provide a fair method for us to distribute the goods and services of society then it has failed.

One might assert that money has succeeded because it is working for more than 51 percent of the people, but I think that is skewed reasoning since we have the physical means of providing for 100 percent of the people.

The reason we don't provide for everyone's needs is that we don't' have "enough" money. Money is our excuse for not doing the right things. Money doesn't work.

The most insidious thing about money as a system is that it keeps us from telling the truth about everything in life. It corrupts our souls so we no longer share the truth with each other. We say "I don't have enough money" when what we really mean is "I don't want to help." A commercial for Coke or Pepsi is never followed by a comment about how unhealthy these products are for you on the TV news. Money doesn't work to set the truth free. We stay silent so that we can get the money.

We've forgotten that help is not about money; it's about help. We have many ways we can help each other but we continually depend on money. That's why I'm going to create a window for people who want to use my program, the MetaMind, but don't have enough money. They can become "Beta Testers" and get free access in return for their help in finding bugs and helping to develop the database and the idea.

Anyway, consider how money doesn't work in politics. Howard Dean was giddy at the prospect that he would have $200 million to battle Bush. His now-fired campaign manager called it the "$100 Revolution" where he envisioned 2 million people donating $100 each to Howard Dean's Presidential campaign. There's nothing revolutionary about that idea; it's the same old crap: "Give me the money and I'll change the world."

If Howard Dean had picked up the phone and called me I might have given him the ideas which would have led him to victory. But no, he was too proud to call a humble peasant like myself. He put his faith in money. Money doesn't work. Dean is done.

Money doesn't work to save the environment either. We know we should "reduce, re-use and recycle" but how does that work to create jobs? It doesn't. Doing the WRONG thing creates economic progress in the money system while doing the RIGHT thing causes economic stagnation and even decline. We should be thinking seven generations into the future but instead we're thinking about how we can turn a profit in the next six months. Money doesn't work.

President Bush said we should go to Mars. I totally agree. It's "what's for dinner," what's on our plate, what we must eventually do, so let's get started. We have the people to do the work, the industrial capacity to make the stuff, and the technology to make it happen. Why was his proposal a non-starter? We don't have the money. Money doesn't work to get us into space.

At every turn money stands in the way and says "You can't do that." You can't provide health care for every American, you can't have free and open political campaigns without a lot of money to corrupt the voters, and you can't go to Mars because you don't have enough money. Money doesn't work.

Money stands in the way of human progress and we need to talk about what needs to be done. I think money needs competition. We need another system for distributing resources in society. I think that every company should be encouraged to give away 10 percent of their productive capacity, whether it is goods or services, to individuals who need it. Those of us who have money should support companies which do this. I call it the "ten percent" solution.

The government should provide an open data system for companies to report who has received their gifts. We need to learn to live in the open.

If you want the free stuff, you must release some personal information in exchange. That's fair. The less dependent we are on money, the more freedom we will enjoy. Government should be in the business of putting itself out of business. We need to learn how to live without either government or money. Let's remember our ideals.

Business has excess productive capacity so it should share it willingly with those who need it. Government should facilitate this process and the people should support the businesses which embrace this new ethic.

We don't need more laws; we need a new system of distributing resources in society. Money needs competition.

Instead, government continually presents money as the solution to our problems which breeds more dependence on both government and money. It's a psychological trap. Money is tyranny, plain and simple. You can embrace money or government but you are embracing tyranny in either case.

Money is a sick system because it keeps us from telling the truth. It's as if there is a huge elephant in the living room and we can only talk about the mouse in the corner. Money is the elephant and it shouldn't be in the living room. Money shouldn't be the focus of our lives, the meaning of our lives, the purpose of our lives. It's all wrong. Money should be outside in the back yard or perhaps downtown in a zoo, but not in our living room. The living room is our heart. Money doesn't work to promote healthy minds.

The mouse in the corner are the corrupt corporations which take our jobs overseas, cook the accounting books, and take huge salaries for their top officers. Yeah, we need to talk about it, but it's the small issue in my opinion. The big issue is the failure of money to promote peace, prosperity and human progress.

How can it be that spiritually wise and enlightened people refuse to "tell the truth" about money being a failed system? Where are the preachers teaching the wisdom of Jesus Christ regarding money? Do you think Jesus had a bank account or mutual funds? Do you think he self-identified himself as an "investor?"

Let me refresh your memory about what Jesus taught regarding money. He said "The love of money is the root of all evil." I ask you: how can you HAVE money without LOVING it? You love something or someone by paying attention to it. Therefore, if you pay attention to money, you love it!

The nature of money is self-deception, so that we can't even tell ourselves the truth any more, the truth that we are doing evil by even paying attention to money at all. I am doing evil now by surrendering my idea to the "will of money."

Jesus told the rich man to "sell everything and give it to the poor" when asked what else one could do to be righteous. Jesus overturned the money changers' tables in the temple. Jesus was a pauper, a man without money or property. He didn't own any slaves and was probably what we today would consider a "homeless man."

Money doesn't work to build a spiritually mature society. It constantly requires the rule of coercion, via government or artificial scarcity, to get things done. We go to government and say "redistribute money by force of the gun because it isn't happening on its own accord." But that just makes us more dependent on government. Taxes go up and the people hate government more and love money. Jesus said "render unto Caesar that which is Caesar's" meaning we should willingly give our money to government because it belongs to government.

But the Republicans, who appeal to the Christian right, say "It's your money." It's not yours if you believe in the teachings of Christ. The Republicans are an evil group of conspirators who consistently pervert the truth into a lie. Money doesn't work.

Money and government are two sides of the same coin. The idea that we will eventually create a just society through money is flawed. We will only get to tyranny through money, either by a revolution once the concentration of wealth syndrome has played itself out to its natural conclusion, or by socialism if the people ever get enough power to force the rich to surrender their wealth through taxation. Either way, it's not a spiritually enlightened society: it's a constant battle over who gets the resources. This is why politicians constantly say "I'll fight for you." Who or what are they fighting? Money and the people who have it. Money doesn't work to promote social justice.

My software is designed to promote the idea that we can "discern quality" through the search for consensus. The philosophical assumption is that quality, consensus and righteousness are all the same thing.

Now some people say that consensus doesn't exist, that there is always someone who disagrees. Perhaps, but consider the virtues, things like kindness, compassion, and forgiveness.

Everyone considers virtues to be good things. So let's start with virtues, since we already have consensus on them. If a proposal is virtuous, then it should be done. This is exactly the reverse of what money teaches us. Money teaches us that if a proposal gives me an "advantage over others" then it should be done. Money is war, constant struggle to get into the dominant position in the social hierarchy. Money doesn't work to produce consensus.

We have made a million kings and queens with money. I live next door to one of them. He's a multi-millionaire who doesn't have a job. He inherited his wealth, I'm told. Most of the neighborhood hates him because be behaves like a little king. He literally owns the road we live on and "graces us" with permission to use it. He has a mental problem, perhaps "bipolar" disease, which seems like a catch-all term for all the things that go wrong with people when they get into controlling others. Money doesn't work to promote community.

We should give rich people jobs helping others. If a job is good for poor people then it is good for rich people too. The social isolation of the rich produces mental illness.

He's a controlling sort of person. He doesn't have to listen to anyone ... he's rich. This is the consequence of money; it makes people who are "above the rest of us." We all know how "money buys justice" since the O.J. Simpson trial. Money is our salvation. It's how we "rise above" the rest of humanity and make ourselves special. It's not our deeds or values .... it's just money that matters. Money doesn't work to create justice.

Money is a failed system because it doesn't provide a way for people like me to get my message out to the world. I have to "surrender to money" I am told. Then I can be successful. Then I can get the recognition I need and desire. Then I can go to the dentist. Then I can pay my auto insurance. Then I can have my own home. First, I must surrender to a failed system.

Well, I'm ready to surrender people. Because you already have. You don't have time to do the things that need to be done because you're busy doing things which don't need to be done for the sake of money. It's a collective conspiracy. It's a spell. We cast it upon ourselves in the end so that we can live within this crazy system without going crazy. At least I can tell the truth before I surrender.

We tell ourselves "everyone needs some money" so I'll just do whatever is necessary to get some. We don't work for an alternative economic system which would de-necessitate money because then we would be making it harder to make money ourselves. We're trapped by money; we need to support it if we want to get it. If we support it then we become dependent upon it and can't tell the truth about it. It's a mental trap.

How do we free ourselves of this trap?

  1. Seek the truth.
  2. Speak the truth.
  3. Support the truth.
Any other alternative seems to lead to war. In truth, I think the "War on Terror" is all about money. Money itself is a system of warfare.

They teach "business as war" in the nation's business schools. Competition gets to be quite serious. Winning is everything. Money promotes this mental attitude which produces competition, conflict and war.

Meanwhile, we have the resources we need to provide for basic human needs, promote quality products and services and go to Mars. We have everything we need .... except enough money.

Because we don't have enough money we end up fighting with each other. Money is the true terrorist. Try living without it sometime .... it's a collective terrorism. We do it to ourselves.

It's all quite senseless. The idea that money is simply a form of "abstract barter" is so wrong. It's much more than that; it's a system of oppression and exploitation so that some people ... less than one percent of humanity ... can live like Kings and Queens. It's a system for preserving their position in society. The "concentration of wealth" syndrome is not an accident of money; it's part of money's design, part of it's very nature. It's easier to make money when you have money.

Money doesn't care about quality, just quantity. It's the nature of money. Money doesn't work to promote quality. We have government regulation for that.

Money is our true God. We think more about money than about anything else so it is the true focus of our existence. Do you think the Islamists have a point? We are the Great Satan because we force everyone to bow down to our god: Money.

Money is evil. What should be done with it? Seek the truth. Speak the truth. Support the truth.

That means you should join the MetaMind and share quality resources in the open for free. And you should send me some money if you can, because money is the dominant paradigm. That's not just a couple of words on the screen: it means if you don't surrender to money, money will destroy you. Money has been destroying people for thousands of years.

Money has been un unnatural influence on natural selection since it's beginning. We've been using it to kill people, actively and passively, who don't have enough money to defend themselves.

Please think about it. Pease support quality ideas, products, companies and a quality discernment system. Money is all about the rule of "quantity." Let's do the "other thing." Money needs competition.

Set the truth free!

Steve Moyer

Creator, MetaMind http://metamind.us

Virtues Project: http://metamind.us/virtues

Constitutional Convention: http://nodes.org/cc

Quality Choices: http://qualitychoices.us

[ Parent ]

There's nothing like... (3.75 / 4) (#191)
by cr8dle2grave on Fri Aug 29, 2003 at 11:03:04 AM EST

...an alternative currency article to really bring out the kooks. Any bets on how long it'll be before Balderson shows up with his canned spiel about "warrior re-insurance networks" or whatever it is he calls it?

Unity of mankind means: No escape for anyone anywhere. - Milan Kundera

Self-reflective currency (4.00 / 2) (#203)
by Perpetual Coming on Fri Aug 29, 2003 at 03:18:26 PM EST

I've been thinking and experimenting with these concepts for a long time now. I first came to Lietaer's work because I studied nationalism and ethinicity in college and was concerned about the ability of fiat currency to enflame and foment more militant forms of nationalism.

So, my friends and I have been experimenting with time dollars and other currency arrangements for a while. There are times when we purposely "indebt" ourselves a number of hours to encourage projects and asking for help when we would otherwise be hesitant. Really good friends would ideally help each other move, for example, but some type of accounting actually encourages harder work and proactively leaning on each other. It creates community, actually. I go over and help my friend do spring cleaning for ten hours, cleaning the toilet, basement, etc., and he turns around and owes me that number of hours in any capacity I decide. Two heads are better than one, so when I get to cleaning or refinishing the floor, it helps to have him around to motivate me.

Since I've tried this with most of my friends, it's worth noting that some of them have not taken to it. One specifically said that she resented formalizing something that should be kept informal--that it somehow diminished good will amongst friends who should help one another out without any expectation of return. She said it takes the bad parts of the hyper accounting of national monetary systems and allows it to encroach upon every day community.

I have to say that this reasoning really resonated with me. I still think it's necessary to formalize effort when it goes beyond a specific amount of time, but I do understand her point. It's just when things scale up, more formalization is necessary, but money is currently so speculative and outside the basis of any true standard of value that it creates a lot of insanity in the world.

Either way, I absolutely think that money is encroaching upon community, whether its basic unit is a village or a family. Think about how many conflicts money creates in marriages and what a huge percentage of arguments relate directly to money. And so, money creates a lot of illusions and perceptions that we act on without any true knowledge of the effect it's having.

So, I'm here to offer my current thinking on reforming money. The great thing that Lietaer has done for me is to reinforce this idea that money is highly subjective and heavily based in our own psychology. I would like to introduce a new religion called "money". This religion only has one rule, one tenet, one law, one belief, one ritual, etc. This is "Act toward others as you have enjoyed being treated". That's it. This law, rule, whatever you want to call it is the basis of every social contract or construct, whether it's religion, science, law, progress, freedom, equality, community, family, education, reasoning, sanity, logic, love, or anything else. If enough people hijack the definition of money with something that will counterbalance the effect that it's currently having, it will change the monetary system from within the minds of its current practitioners. Because money is such a vastly complex distributed system, you cannot change it except in a truly laissez-faire way.

LETS mechanics questions: (4.00 / 2) (#223)
by guidoreichstadter on Sat Aug 30, 2003 at 10:34:34 PM EST

Some questions if anyone can answer: I was thinking about the LETS system, and wondering about two mechanical aspects:

One: to complete a LETS transaction, the two parties need to report the value of the transaction to the central LETS accounting system. Are there any real-life implementations of LETS operating now that use automated phone messaging with PIN's to facilitate transaction?

Two: are there any LETS systems that allow the participants to tokenize credits for use in physical exchange?

One last question- since LETS is honor-based with no resort to physical force to ensure people actually pay their debts, isn't it really a form of computer-facilitated gift giving? As such, would LETS transactions be tax-free under US law below the tax-free gift threshold? Any replies are appreciated

you are human:
no masters,
no slaves.

About taxes (none / 0) (#232)
by atreyu42 on Sun Aug 31, 2003 at 06:37:39 PM EST

From the FAQ: What about income tax?.

[ Parent ]
Simplified example. (4.50 / 2) (#231)
by bigbtommy on Sun Aug 31, 2003 at 03:27:20 PM EST

In my old street, we used to have a simple system for babysitting - exchanging 'time' with one another - eg. 'one evening' tokens to babysit children.

Why did it work? Simple. No tax. No stock exchange. No overdrafts. No credit cards. No organised borrowing. Only very minimal giving (eg. if somebody was ill or had to look after an elderly relation etc.)

It was a working economy. Once you start adding liberal amounts of taxation, borrowing etc. the economy stops working and starts fluctuating.

A sort of 'karma' system almost.
-- bbCity.co.uk - When I see kids, I speed up

The problem with conventional money systems: (3.00 / 5) (#238)
by muonium on Mon Sep 01, 2003 at 03:21:55 AM EST

You guys seem to complicate what is a simple problem.

I think I can do it with out too many big words.

It is a problem with the mechanism we use to provide our economies with money:

Contrary to common belief, money is not created by the government but rather by the banks.

Thanks to fractional reserve banking, the banks can lend out money they don't really have. They can do this so long as the amount they lend out is about equal to the amout they get back as deposits.

This is why you get interest on your deposits.

Therefore to earn money they have to charge more interest on loans than on deposits. But where does the money come from to pay the difference between the interest on loans and deposits? It must come from the banks, since they are the source of money in the economy. And they create money by issuing loans. So, to keep the system going people need to borrow more money this year than they did last year and so on into the future.

Hence the stability of out monetary system depends on us borrowing more and more each year. And that is the problem, our system requires we collectively take on an ever increasing debt burden.

Eventually we won't be able to take on anymore debt and the system will fail.

Money is just.. (2.00 / 2) (#240)
by QuantumG on Mon Sep 01, 2003 at 04:07:19 AM EST

a way of not participating in society. In the barter system you either put up with what you can make yourself, or you meet people and become part of society. With money you don't need to, all you need do is find someone who'll give you money for the things you can do/make, then you need never get to know anyone else again.. you can just take your money to a shop and exchange it for all the goods you need.

Gun fire is the sound of freedom.
I take issue (none / 0) (#244)
by Meatbomb on Mon Sep 01, 2003 at 01:49:02 PM EST

with your use of the word "just", in both instances. Money is so extremely useful, for the reason you lay out so clearly here.


Good News for Liberal Democracy!

[ Parent ]
Isn't that backwards? (none / 0) (#269)
by Fizyx on Wed Sep 03, 2003 at 07:10:05 PM EST

With money you don't need to [participate in society], all you need do is find someone who'll give you money for the things you can do/make, then you need never get to know anyone else again

Setting aside your own admission that I need to meet someone to make money in the first place, if I do things around the house myself (fix, clean, paint...) then I wouldn't meet the service people I hire (plumber, maid, painter,...).

Hermits are the only people who DON'T need money.

This is so obvious, I suspect that I been trolled.

[ Parent ]

dBarter (4.00 / 3) (#241)
by Baldrson on Mon Sep 01, 2003 at 12:08:47 PM EST

Check out dBarter for a softwere package that supports peer-to-peer electronic currency exchange. You just let everyone create their own promises and issue coupons representing those promises -- and exchange them electrnoically in peer-to-peer systenm.

Currency is a promise to provide something upon presentation, to the issuer, for redemption. It's that simple. Anything that doesn't have a credible such promise associated with it isn't going to be a currency very long.

Fiat currencies are backed by their value as "legal tender": that is they are tokens that are accepted by the courts for payment of judgements or other obligations imposed by the government. Torture can be indirectly backing for currency by simply saying you promise not to torture the bearer of the currency if he presents it to the authorities. This is the current basis of governance and money in the US.

Promising not to torture someone is addictive to central authorities as a monetary base since it is far easier for them to increase levels of punishment than to create rewards. dBarter can be used for torture-backed currencies by simply changing the promise to such, but it is generally easier for individuals to promise to deliver, say, a dozen eggs upon presentation of an electronic coupon issued by a chicken farmer, than it is for an indivdual to go around threatening everyone with HIV-infected prisoner gang-rape if they don't acquire their coupons and present them to the issuer.

-------- Empty the Cities --------

Can someone explain this intriguing paragraph? (none / 0) (#258)
by OzJuggler on Tue Sep 02, 2003 at 01:29:59 AM EST

Can someone explain this intriguing paragraph?
The only requisite is that every transaction must be registered at the LETSystem Registry to be disclosed for other people at the LETSystem. So this system avoids scarcity and therefore complementary community currencies cannot be subject of speculation.
I don't follow the reasoning here. I don't see how the last clause follows from the 2nd-last. And I don't see how the second sentence follows from the first.

I read the link on speculation and learned some things about that, but it didn't help me figure out how speculation requires scarcity. Surely speculation is not usually done with the intention of starting a bubble - or am I being naive? Even so, the speculation is independant of the actual supply and demand of the goods/services being traded, so I don't see how actual scarcity affects susceptibility to speculation.

With respect to the transaction registry, is it the scarcity of value justification information which makes conventional currencies subject to speculation? Is there an analogy with the political transactions of academic institutions (ostensibly meritocracies)?

It just feels like this paragraph is an important one to understand.
"And I will not rest until every year families gather to spend December 25th together
at Osama's homo abortion pot and commie jizzporium." - Jon Stewart's gift to Bill O'Reilly, 7 Dec 2005.

Scarcity and speculation (none / 0) (#276)
by marcmengel on Tue Jan 27, 2004 at 12:42:17 PM EST

I think what the original poster was getting at was that one of the reasons the value of various currencies fluctuates is that it is scarce -- i.e. there is a fixed number of U.S. Dollars, so for an extreme example if I suck up 90% of them and stick them in my basement, everyone in the U.S. is forced to scrabble over the remaining 10%, so the value of the dollar goes up. Then as I use my hoarded dollars to buy up things, this lets the value come back down again. So according to economic theory, it's the fact that it's a scarce resource that people will in essence bid at auctions for it, and thus change its value. Since its value changes you can speculate on which way you think it's going to go, and you get the feedback cycle we currently have, where a large portion of the reason the value changes is because people are speculating on it.

In practice in the U.S. this works more indirectly mainly by the combined mechanisms of export deficits and currency markets -- the Chinese are sitting on lots of U.S. dollars they can't spend in China because we buy lots of stuff from them. They go through currency markets to convert them to a currency they can use, and this shoves the price around.

In these work-hours based systems, individuals generate new units of currency by working for an hour (i.e. working for the city picking up trash, etc.). No-one can keep you from doing so by hoarding currency. I can then trade the 1/2 hour of work-hours I earned shoveling snow for my neighbor for the 1/2 hour of work-hours it took for a restaurant to buy and cook my dinner, and if we all agree to that, it's a slightly different form of economy.

In such a system, it's also really hard to have one person paid a factor of 10 higher than another; although folks could agree that you get paid more work-hours for hazard pay (Firemen?) etc.

Now the part I don't understand in these systems is that work-hours are forever generated, but never consumed as far as I can see. So I think I might have some reading to do :-)

[ Parent ]

Evolution of economic parasites... (none / 0) (#266)
by div on Tue Sep 02, 2003 at 10:30:24 PM EST

One angle no one have mentioned yet...
Suppose, just suppose, that the worst interpretations of these ideas are true,
that our current monetary system is "The Matrix". It makes everybody scramble madly for artificially scarce "survival tickets", while secretly harnessing our efforts to it's own purposes.
You could view this as a "state/bak organism" evolving ways to make it's constituent populace work for it self...
It does seem, does it not, that fear of loss of livelihood and life is able to make humans work way harder than altruism and the joy of creating stuff. I for one, know that if I were able to secure my material existence with comfortable margins, and no competition, I would probably spend a lot more time on my back in the meadow, watching clouds drift by...

Suppose then that some country managed to implement The Ideal Monetary System, that would abolish the forced competition for jobs and power, and insure a fair share of resources to everyone.
What happens then, when the nation next door, who are still living under the stick and carrot regime of fiat money and fractional reserve banking, decides it wants those resources for it self, and launches an invasion?
I suspect that even if they managed to raise an army on a voluntary basis, our idealists wold not have the sheer industrial base to resist for long.

In other words: If my parasite makes me work harder than your parasite makes you work, then I will clobber you, and replace your parasite with a copy of mine. If you rid yourself of your parasite, and can finaly relax, I won't even notice, or I will think you strange and weak, and I will clobber you anyway.

What if this has already happened many times  through history, and that is how we ended up here?

For some more in depth thoughts along these lines try: http://econpapers.hhs.se/paper/wpawuwpma/0203005.htm


We plunge for the slipstream, the realness to find - The incredible string band

Can these systems mix? (none / 0) (#268)
by CptPicard on Wed Sep 03, 2003 at 05:18:12 PM EST

I don't think the co-existence of the "hard" and "soft" currency systems is addressed enough. Can they really live together? Can we allow a currency market where you can exchange "hours" to euros/dollars/whatever and vice versa?

I would think that if this was allowed, the "soft" money would get corrupted real quickly and the systems would eventually merge into a single "hard" money system, because those with lots of "hard" money would just simply start buying the "soft" money, and I have a hunch it would end up being undervalued simply because the "hard" money system "counts" in the end... that is, the hard money is what REALLY buys you stuff anywhere you go -- i.e. if you've got the real hard currency, you can pretty much dominate the more restricted soft currencies because the inherent benefits of having hard currency make the soft money undervalued.

Over time, there is no point to maintain the soft currency anymore because it's just one more multiplication in managing your finances, because eventually the soft currency still is turned into the ubiquitous hard one...

As far as my understanding goes, if you want to protect the community currencies from being merged into the national currency through simple human greed (someone is BOUND to turn making community credits into a "real business"), you will have to prevent an exchange market from forming...

Does this make any sense?

Yes and No (none / 1) (#275)
by Alhazred on Tue Nov 18, 2003 at 05:00:35 PM EST

A system like LETSystem is IMMUNE to speculation or cornering in the conventional sense because there are an unlimited supply of credits. Suppose someone offers to buy LETSystem units for $50.00 each, I can just print 100 million of them, then what?

The other factor is of course the question of 'legal tender'. The only thing that gives dollars an edge over Ithaca Dollars (or in my local area Burlington Bread and a couple other similar scrips) is that people are legally obligated to accept dollars. That DOES create a certain value in dollars (ie the coercive force of the US government exists to force everyone to set SOME dollar value for their goods).

On the other hand if enough people want to use an alternative system, it becomes just as 'hard' as any existing money. What would happen if you could purchase things cheaper (in terms of the only thing of real value, labor) using 'Burlington Bread' than you could using 'US Dollars'? Well, guess what, people would probably want to use Burlington Bread, assuming it was well and widely accepted and interconvertible with other scrips/currencies/money in those cases where you couldn't spend it directly.

I do suspect there are some 'laws of money' and that one of them is that monetary systems tend to coalesce around 1 or a few currencies.

I also suspect that no matter what system you create, and no matter what rules it follows, that eventually certain truths will out so to speak. Economies, as opposed to currencies, are fundamentally based on the laws of thermodynamics, not the laws of man. Granted, we decide what to value, but the laws of nature decide what exists and what can be produced, and how much labor it will require to produce it, and how much labor and raw materials exist.
That is not dead which may eternal lie And with strange aeons death itself may die.
[ Parent ]

The Payola system (none / 0) (#270)
by survomies on Sun Sep 07, 2003 at 07:16:19 PM EST

Transnational Republic had an idea about a private currency, Payola. This is a long story, but basically the transnational republics would be new representative institutions for people who want to advocate some idea. Therefore these people would have a more powerful tool for international representation than the Non-Governmental Organization that is used these days for transnational politics. And to empower these transnational republics there is a need for them to have their own currency.
Sounds confusing, eh? ;)
Actually it's a nice idea, though i think that the corporations will have their transnational republics and microcurrencies before the activist movements are ready to do it.

What is money? The old answers weren't good then.. (none / 0) (#277)
by wakim1618 on Wed Jan 28, 2004 at 04:54:41 PM EST

In most economic theories, there is nothing called money. There are prices for things, or exchange rates for everything in terms of one another (bananas per car, cars per CD, etc...). This includes trades over time (eggs today per egg next year) and what some economists like to call the store-of-value function of money. They are just confused. In the world of economic theory, the transaction system is equivalent to one where everyone being able to buy everything with credit cards and having their pay deposited as credits.

However in the real world, relative prices are not known to all and you can't engage in direct trade (imagine going to Ford and saying you will give them 1600 person hours of labor for an Escort). Money can be useful in this 'real' world as a way to facilitate trades between people. So I give my company 40 hours a week of my labor for little pieces of paper which I then go around and exchange for other things that I want. But the historical evidence suggests that people have used a variety of goods and devices that does the same thing. With the introduction of the internet and recent technological developments, the real world may look more and more like the idealized world of economic theory.

Over time, some economists believed that they have found connections between various (imperfect) measures of money and fluctuations in the economy. I will spare you the details except that the results are still inconclusive. Note that this does not say that exchange rate policies are irrelevant. But exchange rates are simply another price - you can try to say that your labor is worth $2000 an hour but you may not get alot of demand for it. And it could really mess up your personal finances if you kept at it. The section on

The problem with conventional money systems: the global casino

and statements such as

there is at least a 50-50 chance that the next five to ten years will see a global money meltdown, the only plausible way for a global depression

are made all the time and consists of putting up big 'scary' numbers that are generally made-up. Lotsa GIGO (garbage-in, garbage-out) analysis. It could equally be observed how many pieces of paper (directives, reports and all that crap) are created and how little of that is related to the production of real goods.

The future of money is already here. This fear and dislike of money is irrational. If it is really a concern about poverty, then address that directly.

If I wanted dumb people to love me, I'd start a cult.

The future of money: private complementary currencies | 278 comments (166 topical, 112 editorial, 1 hidden)
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