Money: a social contract or an “invisible hand” of inverted totalitarianism?
Raymond Aitken
independant applied researcher
Please cite the paper as:
Raymond Aitken, (2016), Money: a social contract or an “invisible hand” of inverted totalitarianism?, World Economics Association (WEA) Conferences, No. 1 2016, Capital Accumulation, Production and Employment:, 15th May to 15th July 2016
Abstract
I herein posit that money should be re-established as a corpus and apparatus of law that regulates economic production, exchange, and the equitable distribution of the economic surplus of “wealth” (thus generated through the specialised division of labour amongst the household of human society); and that such “wealth” be redefined to its original sense of individual human “well-being”, that arises from a social cohesion, based on the re-institution of the voluntary gift circuit of economic exchange. This approach conforms with the root meaning of “economics”, which is derived from two Greek words “oikos” (household as a social unit) and “nomos” (law): giving the meaning of managing the household according to law.
Money is herein redefined as an unconditionally transferable purchasing right, backed by a production obligation, which is notarised and administered as a public service, within the legal framework of an equitable social contract, through a system of a double entry social accounting, that is best carried out by an institutional architecture of transparent accountable Civil Society Organisations (CSOs).
This creative commons working paper, calls for a multidisciplinary working paper series, positing money as a phenomenon of social contract law, with a view to applying such collaborative research towards a clarification of legal positions in law, enabling a legal mobilisation of Civil Society for the implementation of Third Sector regulated special economic zones, to pilot and demonstrate an institutional architecture for a new non-partisan international monetary system for the real economy; which is not only socially equitable, and ecologically sustainable, but which is also immune from being used as an ”invisible hand” of undemocratic geopolitical power, predicated upon on a systemic process of unjust enrichment, through the illegitimate commodification of labour, land and money.
If this approach started to be successful, who would resist? What can we do about it?
Reply to: Doug Carmichael (May 16, 2016 at 7:19 pm)
A very interesting double question. Thanks Doug. Not so easy to answer, but as a point of departure that you and other might build on, here are some initial thoughts:
YOUR QUESTION 1: If this approach started to be successful, who would resist?
Here are some contenders to start the ball rolling:
(1) The apex accumulators of unjust enrichment and social power as a result of the incumbent system:
1.1: The hidden “goldfingers”, i.e the owners of monetary gold stored by central banks as the ultimate commodity money, which controls and subjugates the money of account function, and converts all monetary claims into a decending hierarchy of commodity monies, with so called “deposit money” (the only one used in the real economy), being at the lowest level with no rights relative to the others. – see: https://www.linkedin.com/pulse/true-monetary-gold-creativity-resourcefulness-human-mind-aitken
(2) The agencies and agents of the apex “goldfingers”:
2.1: Central banks under the control of the BIS – see: http://www.globalresearch.ca/the-bank-of-international-settlements-meet-the-secretive-group-that-runs-the-world/5442583 and http://www.globalresearch.ca/one-bank-to-rule-them-all-the-bank-for-international-settlements/5480852
2.2: The IMF, World Bank etc
2.3: Secret Services and special military units that carry out black ops in support of the global “monetocracy” – see: http://www.gaiandemocracy.net/ and “A Timeline of CIA Atrocities”: http://www.globalresearch.ca/a-timeline-of-cia-atrocities/5348804
2.4 The pseudo-economists, who hide the fact that under the current monetocracy, there are two mutually antithetical economies: the real economy of production, exchange and distribution of real world commodities; and the unreal economy of financial markets, founded on the commodification of land, labour and money. Much of the mathematical modelling and algorithms they use, are taken from or inspired by those used for extractive speculative purposes in the unreal economy of financial markets. Just like parasites in nature, this homoeconomicus non-productive rentier system is able to induce the thinking of its homosapien host into conflating the unreal economy with the real economy; especially by hijacking the higher education and research establishment, awarding pseudo-Nobel prizes to its notable quislings, and enslaving the next generation with student-debt bondage. See: http://www.alternet.org/economy/there-no-nobel-prize-economics
2.5: The corrupt political system – see: http://www.transparency.org/topic/detail/politics_and_government
2.6: The mainstream media as a propaganda, mind-control/psyops instrument – see: http://www.globalresearch.ca/search?q=media&x=0&y=0
2.7: The transnational corporate Tyrannosaurus rex’s that are the inevitable result of a dystopian distortion of the economy, whereby economic liquidity in the form of interest-bearing debt creates a “red in tooth and claw” Darwinian “survival of the fittest” dynamic. Currently these anachronistic dinosaurs are attempting to impose their own private criminal legal system to abrogate the human rights of citizens of all nations. See: http://www.globalresearch.ca/plundering-the-planet-rigged-corporate-free-trade-partnerships-and-climate-change-agreements/5397792 and http://www.globalresearch.ca/the-lie-machine-trade-partnerships-and-the-hegemony-of-us-corporations-over-the-laws-of-foreign-countries/5407687
YOUR QUESTION 2: What can we do about it?
The first thing I would suggest is to follow the wise advice of Buckminster Fuller:
In order to change an existing paradigm you do not struggle to try and change the problematic model. You create a new model and make the old one obsolete. That, in essence, is the higher service to which we are all being called.
That is why my paper calls for a legal mobilisation by civil society for the establishment “of Third Sector regulated special economic zones, to pilot and demonstrate an institutional architecture for a new non-partisan international monetary system for the real economy; which is not only socially equitable, and ecologically sustainable, but which is also immune from being used as an ”invisible hand” of undemocratic geopolitical power, predicated upon on a systemic process of unjust enrichment, through the illegitimate commodification of labour, land and money.”.
It seems other people around the world are independently coming to the same idea. See: Roger Hayes – “The Money Power” – https://www.youtube.com/watch?v=MpmUr36h1Ho
In conclusion, as Victor Hugo declared:
“No one can resist an idea whose time has come.”
No monetary reform can apprehend the perverse problem associated with the trade paradigm and its implicit social game/contract in which competing, self-interested players absolve themselves of moral responsibility for attending to the dire needs of those unable to pay or trade – the poorest and all other species. This mutual absolution of responsibility – without which business could not be viable – invokes the ineffectual ‘invisible hand’ and the always precarious, coercive taxing powers of the state to exercise the compensating responsibility.
I would say that the notion of “mutual absolution of responsibility” you invoke, whereby businesses can only survive as “competing, self-interested players [that] absolve themselves of moral responsibility for attending to the dire needs of those unable to pay or trade” is, where it manifests, only the perverse consequence of a monetary system founded on the privatisation and commodification of the credit commons, by a private banking cartel in collusion with the despotic unitary State. As Eugen Wagner suggests, wherever it might manifest, it “is only a marginal effect”. It is not a fact of human nature, nor of the true nature and economic purpose of money.
If we take the example of transnational corporate Tyrannosaurus rex’s, they are the inevitable result of a dystopian distortion of the economy, whereby economic liquidity in the form of interest-bearing debt creates a “red in tooth and claw” Darwinian “survival of the fittest” dynamic.
Even under the despotic conditions imposed by the operating software of the commodified interest-bearing debt money system, there are plenty of businesses and entrepreneurs who defy the homoeconomicus logic of the system, and act instead form their real homosapien self. For example, in my nearby town is a restaurant which gives meals to homeless people who can’t pay. It hasn’t gone out of business – far from it. Even whole communities are creating a contra-dynamic to the perversity of the present system based on financial markets.
How do you square “the perverse problem associated with the trade paradigm” with social movements, like the one initiated by the people of Todmorden in England, which has now become a worldwide phenomenon? See: http://www.theguardian.com/lifeandstyle/video/2010/oct/19/incredible-edible-todmorden
Dr Richard Mochelle:
Your argument is only a marginal effect, which -for the long term- compensates in a redistribution-neutral monetary system in the economy. As the profit of all participants fluctuates constantly in a monopoly-free market economy, a balance is automatically created. The ability to take profit out of others needs will be constantly reduced to a minimum rate. A compensation that does not take place with respect to the current capital income – which is almost exponentially amplified. The latter could be well prevented by the suggested reform.
Your paper is interesting in various respects, I disagree on your conception of gold. You report the following quotation
“Gold still represents the ultimate form of payment in the world.
Fiat money in extremis is accepted by nobody.
Gold is always accepted.
Alan Greenspan, May 20, 1999”
I am afraid it is a bit deluding. Fiduciary money is backed only by money itself: the ultimate guarantee of the money is the State, not gold.
Linking the value of the money to the gold serves the purpose of disguising the highly discretionary power behind money creation, whose total in circulation amounts to many times the value of the existing gold. It is also untrue that “Gold is always accepted”. By whom?
Hi Arturo,
Your comments and questions stimulated quite a lengthy response, here are the section headings to give you an overview:
[1] HYBRIDIZATION OF TWO MONETARY PARADIGMS
[2] STATE TAX-CLAIM CREDIT MONETARY INSTRUMENTS
[3] COMMERCIAL COMMODITY MONEY INSTRUMENTS ADOPTED BY THE STATE FOR WARFARE
[4] CENTRAL BANKING HYBRIDISATION OF PRIVATE COMMERCIAL AND PUBLIC CREDIT MONETARY INSTRUMENTS – leading to “inverted totalitarianism”:
[5] RESEARCHING GOLD AS AN INSTRUMENT OF DESPOTIC POWER THAT RULES THE WORLD
[6] HIERARCHY OF DIFFERENT COMMODITY MONEYS AS DERIVATIVES OF GOLD
[7] QUESTIONS TO RESEARCH REGARDING THE UNMASKING OF THE DESPOTISM OF MONETARY GOLD
[8] DOES THE FINANCE FUNCTION REALLY NEED RESERVES?
[9] YOUR FINAL QUESTION: WHO ACCEPTS MONETARY GOLD AS A MEANS OF PAYMENT?
REFERENCE TO LALOUX’S BOOK
Firstly, the part of the paper you refer to and quote does not represent my conception of the role of gold in the financial system. It is my research into the conceptual position of those who architecture and operate the present “mutant hybrid” system, and assert power-relations on that basis.
[1] HYBRIDIZATION OF TWO MONETARY PARADIGMS
I call this financial/payment system a “mutant hybrid” because it is a hybridisation of two antithetical paradigms: the false paradigm of money as a commodity (including monetised gold), and the true paradigm of money of account (i.e. monetised credit) that represents not a “thing”, but a social relationship based on purchasing rights backed by production obligations.
As you will see further on in my working paper (section 2.3), I posit that:
The purpose of gold (and other apex commodity reserves), is to assert ownership over the credit allocation function. In such a system, whoever owns or controls the ultimate monetary commodity, controls human productive capacity, and can direct it towards their own ends, and expropriate the value created by others through manufacturing claims against their output, on the basis of interest-bearing loans, which link back to the ultimate “inalienable possession” of monetary gold.
In a LinkedIn article to promote this WEA online conference, I state that “True monetary gold is the creativity and resourcefulness of the human mind” – see: https://www.linkedin.com/pulse/true-monetary-gold-creativity-resourcefulness-human-mind-aitken
This is in line with your statement: “the ultimate guarantee of the money is the State, not gold.”. But I would go further, and say that money is unconditionally transferable credit as a purchasing right, which is backed by a reciprocal production obligation, which productive potential and enabling credit is a commonwealth of the people of a nation. It is us, the people who are always the “lender of last resort”, as the 2008 bail-in shows and the prospective bail-in sword of damocles threatens.
[2] STATE TAX-CLAIM CREDIT MONETARY INSTRUMENTS
Traditionally the involvement of the State in so called “money creation”, as a unitary institution (in distinction to the State as a social contract), has been through taxation. See section 2.10, where I posit that:
“Taxation has been the traditional means of transferring purchasing power from the surplus generating commercial circuit in order to fund the regenerative non-commercial circuit on which the existence and continuance of the commercial circuit of the economy depends.”. For an explanation of the transfer of purchasing power between the commercial and noncommercial circuits of the economy, see section 2.2 “A vital connection between commercial and noncommercial exchange circuits of the economy”.
This State taxation transfer of purchasing power was effected by the State issuing tax claims as a means of payment. This was not money of account itself, but a circulating monetary instrument that served both as an off-ledger accounting device in the payment system, as well as a tax-claim that was spent into circulation to finance the non-commercial circuit of the economy (the public sector), and withdrawn from the payment system when tendered as payment of taxes. One of the best examples of State issuance and withdrawal monetary instruments, which served a dual purpose as a tax-claim and means of payment is the Tally Stick system – see: http://www.parliament.uk/about/living-heritage/building/palace/estatehistory/from-the-parliamentary-collections/fire-of-westminster/tallysticks/ and http://www.webofdebt.com/excerpts/chapter-5.php
Tally Sticks had no “intrinsic value”, they were instruments of a social accounting system for the extension and transfer of purchasing rights backed by production obligations, and their subsequent clearing. In other words, a monetary system of account or “credit money”.
[3] COMMERCIAL COMMODITY MONEY INSTRUMENTS ADOPTED BY THE STATE FOR WARFARE
Another type of monetary instrument for off-ledger accounting in the payment system are circulating coins and later, banknotes. Unlike tally sticks, coins as a monetised gold and silver (commodity money), did not arise within the framework of a social contract within the domain of law, but on the contrary, commodity money arose as an “outlaw” means of payment, for the purpose of international commerce (between different credit money jurisdictions) in the absence of an international rule of law; as well as being adopted by the despotic State for warfare purposes.
As economic anthropologist David Graeber discovered:
– see: Graeber, D. (2011) Debt: The First 5000 Years: https://libcom.org/files/__Debt__The_First_5_000_Years.pdf
“If we look at Eurasian history over the course of the last five thousand years, what we see is a broad alternation between periods dominated by credit money and periods in which gold and silver come to dominate-that is, those during which at least a large share of transactions were conducted with pieces of valuable metal being passed from hand to hand. Why? The single most important factor would appear to be war. Bullion predominates, above all, in periods of generalized violence. There’s a very simple reason for that. Gold and silver coins are distinguished from credit arrangements by on spectacular feature: they can be stolen.” (page 213).
“Someone accepting gold or silver in exchange for merchandise, on the other hand, need trust nothing more than the accuracy of the scales, the quality of the metal, and the likelihood that someone else will be willing to accept it. In a world where war and the threat of violence are everywhere-and this appears to have been an equally accurate description of Warring States China, Iron Age Greece, and preMauryan India -there are obvious advantages to making one’s transactions simple. This is all the more true when dealing with soldiers. On the one hand, soldiers tend to have access to a great deal of loot, much of which consists of gold and silver, and will always seek a way to trade it for the better things in life. On the other, a heavily armed itinerant soldier is the very definition of a poor credit risk.” (page 213).
“… while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metal. What’s more, while predatory lending goes on in every period of human history, the resulting debt crises appear to have the most damaging effects at times when money is most easily convertible into cash. “ (page 213-4).
“The world’s first coins appear to have been created within the kingdom of Lydia, in western Anatolia (now Turkey) , sometime around 6oo BC.”. (page 224).
“Actually, one theory is that the very first Lydian coins were invented explicitly to pay mercenaries This might help explain why the Greeks, who supplied most of the mercenaries, so quickly became
accustomed to the use of coins, and why the use of coinage spread so quickly across the Hellenic world, so that by 480 BC there were at least one hundred mints operating in different Greek cities, even though at that time, none of the great trading nations of the Mediterranean had as yet showed the slightest interest in them.”. (page 227).
[4] CENTRAL BANKING HYBRIDISATION OF PRIVATE COMMERCIAL AND PUBLIC CREDIT MONETARY INSTRUMENTS – leading to “inverted totalitarianism”:
Tally Sticks as public credit monetary instruments were replaced by private commodity money instruments, in the form of coins and banknotes, through the establishment of the Bank of England in 1694. As Graeber suggests above, this development occurred due to the exigencies of warfare:
“England’s crushing defeat by France, the dominant naval power, in naval engagements culminating in the 1690 Battle of Beachy Head, became the catalyst for England’s rebuilding itself as a global power. England had no choice but to build a powerful navy. No public funds were available, and the credit of William III’s government was so low in London that it was impossible for it to borrow the £1,200,000 (at 8% p.a.) that the government wanted.
To induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The Bank was given exclusive possession of the government’s balances, and was the only limited-liability corporation allowed to issue bank notes. The lenders would give the government cash (bullion) and issue notes against the government bonds, which can be lent again. The £1.2m was raised in 12 days; half of this was used to rebuild the navy.”.
SOURCE: https://en.wikipedia.org/wiki/Bank_of_England#Founding
WEA affiliated Professor Geoffrey Ingham provides a very good account of the history of central banking as a “public-private partnership between the state and the financial sector, a partnership whose nature remains obscure to the great majority of the population”, and which inevitably leads to the “inverted totalitarianism” we know as western “democracy”. See: https://www.opendemocracy.net/ourkingdom/geoffrey-ingham/whose-money-is-it and https://freeradicalmaine.com/2016/04/08/overturning-inverted-totalitarianism/
[5] RESEARCHING GOLD AS AN INSTRUMENT OF DESPOTIC POWER THAT RULES THE WORLD
That is why my working paper includes an investigation into the function of gold in the financial/payment system – see section: 3. Gold: an instrument of despotic power that rules the world. It is not that I agree with this machiavellian positional logic of the central banking system. Like you I disagree with it. But we need to understand the positional logic that has hijacked the governance function towards its own despotic ends.
The intention is not to fight it directly, nor to reform it, but to delegitimise it, so that we can, to paraphrase the words of Buckminster Fuller: “change the existing mutant hybrid paradigm, not by struggling to try and change/reform the incumbent problematic model; but to create a new model that makes the old one obsolete”.
We need to delegitimise central banking so that the present State of “inverted totalitarianism” cannot be used as an unlawful legal instrument of coercive force to prevent us exercising our lawful human obligations and rights in institutionalising a new international monetary system through the establishment of special experiential economic zones (eeZones) – see section 6.4.
There is prima facie evidence that gold is the ultimate source of despotic power (see section 3.1) in the incumbent commodity money system that has hijacked and subjugated the credit money accounting system to its own nefarious purposes. For example, official documents of the IMF state:
“A financial claim is a financial instrument that has a counterpart liability. Gold bullion is not a claim and does not have a corresponding liability. It is treated as a financial asset, however, because of its special role as a means of financial exchange in international payments by monetary authorities and as a reserve asset held by monetary authorities.”
– IMF (2009) Balance of payments and international investment position manual sixth edition (BPM6) INTERNATIONAL MONETARY FUND. Available at:https://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf (Accessed: 30 April 2016 (See section 3.24)
“The only financial instrument that does not give rise to a claim is gold bullion that is included in monetary gold.”
– Ibid. Section 5.6
“Gold bullion that has no counterpart liability …”
– Ibid. Section 4.162
Here are more IMF statements indicating that gold is the ultimate monetary commodity, with all other forms of commodity money being hierarchically ordered derivatives of gold:
“Monetary gold is valued at the current market price of commodity gold.”.
– IMF (2012) INTERNATIONAL RESERVES AND FOREIGN CURRENCY LIQUIDITY GUIDELINES FOR A DATA TEMPLATE. Available at: https://www.imf.org/external/np/sta/ir/IRProcessWeb/pdf/guide.pdf
See section 135.
“The BPM6 lists types of reserve assets in this order: monetary gold, special drawing rights (SDRs), reserve position in the IMF, currency and deposits, securities, financial derivatives, and other claims.”
– Ibid. Section 112.
“Monetary gold, SDR holdings, and reserve positions in the IMF are considered reserve assets because they are owned assets readily available to the monetary authorities in unconditional form. Currency and deposits and other claims in many instances are also readily available and therefore may qualify as reserve assets.”.
– Ibid. Section 76.
[6] HIERARCHY OF DIFFERENT COMMODITY MONEYS AS DERIVATIVES OF GOLD
Perry G. Mehrling, a professor of economics at Barnard College in New York City, who specializes in the study of financial theory within the history of economics, has this to say about the hierarchy of monetary derivatives of gold in the incumbent commodity money system:
“In such a world gold is the ultimate money because it is the ultimate international means of payment, and national currencies are a form of credit in the sense that they are promises to pay gold. National currencies may be “backed” by gold, in the sense that the issuer of currency holds some gold as reserve, but that doesn‟t mean that these currencies represent gold or are at the same hierarchical level as gold. They are still promises to pay, just more credible promises because the presence of reserves makes it more likely that the issuer can fulfill his promise.
Farther down the hierarchy, bank deposits are promises to pay currency on demand, so they are twice removed promises to pay the ultimate money, and securities are promises to pay currency (or deposits) over some time horizon in the future, so they are even more attenuated promises to pay. Here again, the credibility of the promise is an issue, and here again reserves of instruments that lie higher up in the hierarchy may serve to enhance credibility. Just so, banks hold currency as reserve, but that doesn‟t mean that bank deposits represent currency or are at the same hierarchical level as currency.”
SOURCE: http://ieor.columbia.edu/files/seasdepts/industrial-engineering-operations-research/pdf-files/Mehrling_P_FESeminar_Sp12-02.pdf
In the same document, Perry provides a diagram illustrating “A Simple Hierarchy” of monetary derivatives of gold and the subjugation of credit money to commodity moneys, with gold as the ultimate commodity:
Money | Gold
^ | Currency
^ | Deposits
—————————
Credit | Securities
Also, in a blog post, Perry conveniently explains “a variety of [intellectual] barriers” which prevent people from understanding the positional logic of the interest-bearing debt as commodity money system, including the notions of “essential hybridity” and “inherent hierarchy”:
“The second barrier is “essential hybridity”. Money is part private (bank deposits) and part public (central bank currency), though in normal times we hardly notice because the two kinds of money trade at par. Similarly, central banks are part private bankers’ bank and part public government bank, with the proportions shifting over time with financial development and with the exigencies of the state (such as war). This fact of hybridity is however apparently hard to accept, mainly because it offends political sense. Idealizations of pure public money attract the left (quoting Knapp), and idealizations of pure private money attract the right (quoting Menger), so that the actual system seems to everyone to be somehow polluted by illegitimate extension.”
“The third barrier is “inherent hierarchy”, which refers to the sense in which central bank money is better money than private bank money, even though they trade at par. You and I use bank money to settle our promises to pay, but banks use central bank money, and central banks themselves use world reserve money. The fact of hierarchy is apparently hard to accept mainly because it offends our sense of justice as between states—the Westphalian notion of equal sovereignty. Importantly, for economists, it also offends our sense of justice as between participants in markets within states. Hierarchy sounds like monopoly, or power, or other non-market mechanisms of allocation that trained economists instinctively abhor.”
http://www.perrymehrling.com/2015/06/why-is-money-difficult/
Here is a very good video lecture by Perry where he explains the positional logic of the banking cartel:
https://www.youtube.com/watch?v=Hkn0yLZ0tS0
[7] QUESTIONS TO RESEARCH REGARDING THE UNMASKING OF THE DESPOTISM OF MONETARY GOLD
The working paper I submitted to this WEA online conference is a work-in-progress, and my intention is to gather new information and perspectives, as well as co-authors. The latest version can always be checked at the following Google Doc (the link is always available at the footer of the paper): https://drive.google.com/open?id=1a05t4rbvxNrXT08yOBBeXiJwGuonncGuySuAmd32dSs
Below are some questions that I think need researching. If anyone has some information relating to them, or can suggest other pertinent research questions, it would be most welcome:
Q1: Who owns the monetary gold stored in central banks and in the Bank of International Settlements?
Q2: What power does this give them over the monetary system, both on a national level as well as internationally?
The “Bank of England Nominees Limited” is a wholly-owned, non-trading subsidiary of the Bank of England, whose purpose is to “hold securities as nominee only on behalf of Heads of State and their immediate family, Governments, official bodies controlled or closely related to Governments, and international organisations formed by Governments or official bodies. They will in turn seek certain assurances from anyone in the eligible categories who wishes them to hold the securities as that person’s nominee.”.
The “Bank of England Nominees Ltd. has also undertaken to make a report annually to the Secretary of State for Trade of the identity of those for whom it holds securities, and, provided that it holds securities for two or more people, the total value of the securities held. The contents of such reports are to be confidential to the Secretary of State.”
SOURCE: http://prosperityuk.com/2011/10/investigating-the-bank-of-england-nominees-limited/
Q3: Are these “securities” held by the Bank of England Nominees Ltd, wholly or partly in the form of gold bullion?
Q4: Do these “securities” generate an income for their owners?
Q5: Are any of the owners of these securities private individuals, in the sense that these revenues do not “go into the public purse at the Treasury”, but into private hands?
Q6: How are the unidentified owners of these securities “accountable to Parliament”?
Q7: If these securities generate profits for their owners, are the amount of such profits reported annually to the Secretary of State for Trade? If not, why not?
Q8: Why are the identities of the owners of securities held as reserves by the Bank of England kept secret, as the Bank of England is a supposedly “public organisation, wholly-owned by Government, and with a significant public policy role, and accountable to Parliament”?
Q9: Do arrangements similar in function to the “Bank of England Nominees Limited” exist in other supposedly publically owned central banks in other countries?
Q10: Do similar arrangements exist regarding gold bullion held by the Bank of International Settlements?
[8] DOES THE FINANCE FUNCTION REALLY NEED RESERVES?
The probability is that there will be a significant lack of honest transparency and full disclosure regarding the above questions. The value of any non-answer or total lack of response is that it legitimises the trust in central banks as bona fide institutions for the public good, and therefore the tenability of State coercion to maintain their privatised monopoly over the credit commons of the nation.
Perhaps we need to build upon and extend the 2013 paper of the WEA affiliated economist, Norbert Häring: The veil of deception over money: how central bankers and textbooks distort the nature of banking and central banking.
http://www.paecon.net/PAEReview/issue63/Haring63.pdf
Perhaps the most important questions are the ones we can research and address ourselves, without needing any cooperation from the central banking establishment, such as:
“Do we really need “reserves” in order to extend monetised credit?
The work of the French economist, Michel Laloux, cited in the working paper, posits three interrelated but necessarily institutionally separate social accounting functions of the monetary system:
1. Financing institutions for the extension of monetised credit as purchasing rights to bona fide producers in the commercial circuit of the real economy, to enable them to produce new/replacement goods and services needed by society, which unconditionally transferable purchasing rights are backed by the reciprocal production obligations of those producers. The notarisation of the production obligations are recorded as debits in the social accounting of the financing institution, whilst the purchasing rights are transferred to a separate institution that operates a payment system. Neither institution can extend credit to itself, and neither can the payment system institution appropriate the purchasing rights of users. All monetised credit is allocated interest free. Operating costs of the institutions will be funded by service charges, like any accountancy firm.
2. The payment system institutions are limited to that function only. They will provide users with two accounts: a purchasing account (like a cheque account), and a deferred purchasing account (like a zero interest “savings account”). Accumulations of surplus purchasing power will be transferred from deferred purchasing accounts, to a third type of institution as an alternative direct democracy means of transferring the economic surplus from the generative commercial circuit of the economy to the regenerative noncommercial circuit.
3. The third type of institution manages the funds of purchasing power that has been transferred from the commercial circuit to the noncommercial circuit of the economy, in order to fund public services and commonwealth capital goods, as well the regeneration of natural and cultural resources. Laloux proposes that the State concentrates on upholding the rule of law and protecting human rights, especially in the monopolistic provision of police (internal protection) and military services (external protection). All other public services (including education, health and social care), as well as commonwealth infrastructures for transportation and communication, be provided on a non-monopolistic basis by Civil Society Organisations (CSOs) in the noncommercial circuit of the economy (the Third Sector). Moreover, the institutional architecture for the international monetary system Laloux proposes will be regulated and operated by CSOs, under the rule of law that is guaranteed by the State.
Now to return to the subject of Financing institutions and the question of reserves:
Laloux proposes that the finance function (i.e. the extension of monetised credit), be allocated to enterprises in the generative commercial circuit of the real economy. This means that the skill resource of financing institutes will be an ability to evaluate:
(a) new/replacement production projects, in terms of need/market, and
(b) the capacity of the prospective producer to
(i) meet that need/market and
(ii) make final settlement in terms of real goods and services in order to obtain sufficient purchasing rights (money) to clear their production obligations (which were registered with the financing institute as a debit).
This is a skill set that the present retail banking system lost by replacing it with financial speculation practices. However, the venture capital sector of the financial services industry necessarily still retains this important skill set.
An element of risk will always exists regarding the need/feasibility of proposed production, and the actual capacity of the financed enterprise to produce the goods and clear its financial obligations; as well as because of “force majeure” reasons (natural disasters, war/social disorder, death/invalidity of producers etc). Credit default is therefore inevitable. But as venture capital experience shows, the successes more than make up for the failures. Laloux therefore proposes an “operating insurance” to mutualise and absorb the catastrophic effects of such risk; both to the people and enterprises concerned, as well as to the viability of the monetary system itself.
Under this paradigm, it is argued that the need for “reserves” in the form of monetised commodities is obsolete.
[9] YOUR FINAL QUESTION: WHO ACCEPTS MONETARY GOLD AS A MEANS OF PAYMENT?
Finally, in answer your assertion that it is “untrue that “Gold is always accepted [as a means of settlement]” and your related question “By whom?”:
Well this question needs further research, and here is some preliminary sources that could give us a clue:
Exclusive: Venezuela central bank in talks with Deutsche Bank on gold swap
http://www.reuters.com/article/us-venezuela-economy-exclusive-idUSKCN0VE1AT
How Central Banks Use Gold Swaps To “Boost” Their Gold Holdings
http://www.zerohedge.com/news/2014-11-15/how-central-banks-use-gold-swaps-boost-their-gold-holdings
TREATMENT OF ALLOCATED/UNALLOCATED GOLD HELD AS RESERVE ASSETS AND GOLD SWAPS AND GOLD DEPOSITS – Prepared by Hidetoshi Takeda, IMF Statistics Department
https://www.imf.org/external/np/sta/bop/pdf/fu111.pdf
Gold and Central Banks
http://www.bullioninternational.com/wp-content/uploads/2014/05/Gold_and_Central_Banks_PUBLIC1-1.pdf
As I already said, I am still at an early stage of research regarding the role of gold in the financial/payment system. If anyone can provide more information about this it would be most welcome.
Thanks for your questions Arturo. They certainly help me to progress in my research.
REFERENCE TO LALOUX’S BOOK:
Laloux, M. (2014) Dépolluer l’économie, Tome 1: Révolution dans la monnaie.
Available at: http://www.democratieevolutive.fr/fr/Products-listing/product/l3.html
This book has been translated into English by myself, and it is in the process of being published. The title of the English edition is: Detoxify the economy, Volume 1, A revolution in thinking about money.
Sample chapters are available at: https://docs.google.com/document/d/1sSpFwUXMUnN9UERicsPXQ3wprY-1dZyGy0QBmh6DX4s/edit?usp=sharing
I am not an economist and have only a lay person’s understanding of banking and international finance. I was impressed by Rowbotham’s book ‘Mortgage’, probably 15 years ago or more. It prompted me to think about debt in its broader ecological context. I find your figure 1 incomplete in not acknowledging the role of solar income – the free supply of energy that drives almost all other life processes, and the various natural capitals of minerals, fossil fuels, soils, forests, oceans and the living resources we exploit and treat as ‘free’
Coming back to debt. It seems to me that debt is created out of thin air by the banking system. Each debtor must repay the debt, with interest, by undertaking actvities that generate a profit. The builder of a house uses labour plus materials ultimately derived from the exploitation of forests, quarries, fossil fuels, and the work done by countless others lower down the supply chain. If we trace all those transactions back we realise that all debts are ultimately paid by expropriating so called free energy or free materials.
As the global mountain of debt grows, so does the impact on the biological resources of the planet. Does this mean that we should write off much more debt to reduce the pressures to overexploit our environment?
Hi John,
[1] YOUR QUESTION ABOUT FIG. 1
Correction to Fig. 1
—————————-
Firstly there is a typo error in Fig. 1: it shows in the “noncommercial circuit” of the economy that “private sector agents on a for-profit-basis” regenerate the commonwealth factors of production.
– “private sector agents on a for-profit-basis” should be: public sector agents on a not-for-profit basis” (as per the paragraph above Fig. 1).
I have corrected Fig. 1 in version 2 of my working paper, which you can access at:
https://drive.google.com/open?id=1HaP0wM8ZZbO4hcwQxLIqmp-Be20gQAHLPPq35QWk3fE
You can view all the changes I made in version 2 at:
https://docs.google.com/document/d/1nI5C6Un4X0HhC4BU69GNxGJ13HcHzmO-5uxy6vbGv_w/edit?usp=sharing
The latest version of this paper can always be checked at the following Google Doc (the link is always available at the footer of the paper): https://drive.google.com/open?id=1a05t4rbvxNrXT08yOBBeXiJwGuonncGuySuAmd32dSs
Fig. 1 does not acknowledge the resources we exploit and treat as ‘free’
——————————————————————————————————–
True. The purpose of Fig. 1 was to illustrate the concept of the economy having a generative commercial circuit and a regenerative noncommercial circuit. All the free resources you list (and more) are therefore summarised in Fig. 1 by the term “commonwealth factors of production”.
I will have to add a note or extra diagram in another version of the paper, to show the full range of resources that you refer to.
In fact my footnote 6 references (Aitken, 2014), a LinkedIn article by myself, which does in fact give a fuller description of what I mean by “commonwealth factors of production” – see:
https://www.linkedin.com/pulse/20141113021837-116611080-a-new-way-of-seeing-capital
Here is an extract:
“From this perspective, we can distinguish between two other forms of economic capital.
Natural capital
Firstly, there is what we call “capital” in the form of the “resources of nature”, which pre-exist the action of human capital, and which are called “natural capital”. Besides land, “natural capital” includes: rivers, lakes, seas, forests, soils, seeds, extractive minerals, things that exist because of the action of the sun and the moon (wind, tides, solar energy), the radio spectrum, the area in space useful for satellites, genes, and the human body itself.
Cultural capital
Secondly, there is capital in the form of human-made “resources” or “means of production”, which are produced through the application of “human capital” to “natural capital”. This derivative form of human capital can be referred to as “cultural capital”. As well as being tangible, like physical tools or processed raw materials, Cultural capital can also be intangible, such as in the form of transmittable know-how, and intellectual property [as well as domesticated plants and animals].
In fact, what we perceive as tangible cultural capital, is actually intangible cultural capital that has been incorporated within a material form.
Our physical body, including our brains, represent the natural capital that our innate human capital works through to produce intangible forms of cultural capital, such as ideas, knowledge and organisational frameworks.
Human capital
In summary, each of us is endowed with innate human ability, which represents the fundamental form of economic capital. The classification of natural and cultural factors of production, as forms of capital, is entirely dependent on the existence of human capital.”
[2] YOUR STATEMENT: “debt is created out of thin air by the banking system”
This statement is similar to the popular criticism that banks create money “out of thin air”.
They don’t. Interest-bearing-bank-debt-money comes into existence through contracted debt-bondage, which is enforced by the hijacked State, whereby tax claims on the future production of the people are used to pay a mostly counterfeited “national debt”. Instead of taxation serving to transfer the economic surplus from the generative commercial circuit to the regenerative noncommercial circuit; it is used to siphon tribute from the economically enslaved, to those who have illegitimately privatised the monetary system for unjust enrichment and despotic power.
[3] YOUR STATEMENT: all debts are ultimately paid by expropriating so called free energy or free materials.
Yes. In other words, to keep servicing the debt burden that grows at the exponential rate of compounding interest, and have sufficient net purchasing power left to maintain sufficient economic production; a cancerous conversion rate of natural resources and human relationships into new money has to be maintained, otherwise this interest-bearing-bank-debt-money system implodes upon itself.
We already reached this terminal phase in the 1970’s, when the ecological and resource limits of the planet were first breached. This parasitic unreal economy of financial markets continued to operate on a life support system of “virtual profits” accounting and asset inflation, and since 2008 we can see clearly what Minsky predicted in his Financial Instability Hypothesis (FIH), which he called the final “Ponzi stage of finance“. (See section 3.7).
See: https://en.wikipedia.org/wiki/Hyman_Minsky
The commonwealth resource factors of economic production that have been abused, degraded or depleted, not only comprise energy and materials, but also living ecosystems and cultural capital (see [1] above). My working paper posits money as “a corpus and apparatus of law that regulates economic production, exchange, and the equitable distribution of the economic surplus”. As a creature of law, money lies in the cultural domain.
These commonwealth factors of human well-being (the root meaning of “wealth), are a “gift” of Life (“free” in your terms). They are factors of production that pre-exist human production, or cultural capital which actual producers did not themselves create. (See section 2.2). Therefore these commonwealth factors of production, on which everyone depends, have to be stewarded. That means they cannot be held as an exclusive property right, but accessed through use rights that are conditional to ecological sustainability and social equitability. This in turn means that they cannot enter into the economy itself, as commodities, which can be bought, sold or rented.
There are three critical commonwealth factors of production which cannot be treated as commodities: land (natural and cultural resources), human work and money. Here is a paper, by Gary Flomenhoft, which was published in the WEA real-world economics review, which gives a very good explanation of the self-destruction of human society that results from the commodification of land, labour and money:
Escaping the Polanyi matrix: the impact of fictitious commodities: money, land, and labor on consumer welfare – http://www.paecon.net/PAEReview/issue74/Flomenhoft74.pdf
[4] YOUR QUESTION: As the global mountain of debt grows, so does the impact on the biological resources of the planet. Does this mean that we should write off much more debt to reduce the pressures to overexploit our environment?
Freeing the real economy from the affixation by an inflated fraudulent debt burden would certainly be a first necessary step, but it is not sufficient. We need to establish an alternative international monetary system that is not based on interest-bearing-bank-debt-money. Otherwise we will be back in the same catastrophic situation.
Regarding debt write off, the best procedure is what is called a “debt audit”. This is what Ecuador successfully pioneered:
“In November 2008, Ecuador became the first country to undertake an examination of the legitimacy and structure of its foreign debt. An independent debt audit commissioned by the government of Ecuador documented hundreds of allegations of irregularity, illegality, and illegitimacy in contracts of debt to predatory international lenders. The loans, according to the report, violated Ecuador’s domestic laws, US Securities and Exchange Commission regulations, and general principles of international law. Ecuador’s use of legitimacy as a legal argument for defaulting set a major precedent; indeed, the formation of a debt auditing commission sets a precedent.”
– See more at: http://projectcensored.org/10-ecuador-declares-foreign-debt-illegitimate/
The Guardian newspaper has an interesting article about citizens demanding a moratorium for the cancellation of fraudulent/odious debt. Here is a pertinent extract:
“Anyone who has read a newspaper in recent years knows how important debt is to contemporary politics. As David Graeber among others has shown, we live in debtocracies, not democracies. Debt, rather than popular will, is the governing principle of our societies, through the devastating austerity policies implemented in the name of debt reduction. Debt was also a triggering cause of the most innovative social movements in recent years, the Occupy movement.
If it were shown that public debts were somehow illegitimate, that citizens had a right to demand a moratorium – and even the cancellation of part of these debts – the political implications would be huge. It is hard to think of an event that would transform social life as profoundly and rapidly as the emancipation of societies from the constraints of debt. And yet this is precisely what the French report aims to do.”
SOURCE: http://www.theguardian.com/commentisfree/2014/jun/09/french-public-debt-audit-illegitimate-working-class-internationalim
There is even a Committee for the Abolition of Illegitimate Debts (CADTM), based in France. It is worth reading their article: “Citizen debt audits: how and why?” Here is the first paragraph:
“The question of the repayment of public debt is undeniably a taboo subject. The heads of State and governments, the European Central Bank, the International Monetary Fund, the European Commission and the mainstream media present it as inevitable, indisputable and obligatory. The people have no other choice than to knuckle under and pay. The only possible discussion pertains to how the burden of the sacrifices will be spread around so as to find sufficient budget to meet the nation’s obligations. The borrowing governments were democratically elected, thus the debts are legitimate; they must be paid. A citizens’ debt audit is a means of breaking this taboo. It enables an increasing proportion of the population to grasp the “ins and outs” of a country’s national debt process. It involves an analysis of the borrowing policy followed by a given country’s authorities.”
– See more at: http://cadtm.org/Citizen-debt-audits-how-and-why
Regarding the establishment of an alternative international monetary system, which is not based on interest-bearing-bank-debt-money. Well, this is the actual subject of my working paper.
Thanks John for your comments and questions.
Dear John, you raised a central problem. The World’s total debt is at least fivefold the World’s GdP. This means that it will never be repaid. No problem, nobody would die of it! The real gain for the big finance relates to today’s interest payments.
The two magic words for multiplying debt are: (i) debt consolidation, that means that debt expiration will be posponed until the year 3000! And (ii) bank recapitalization, that means that central banks will acquire the bad credits of the banks by providing “fresh money”.
Thanks Arturo, but I cannot agree that no one will die of debt. On the contrary, when I read of local Australian farmers driven by debt into bankruptcy and suicide, or I learn of thousands of Indian farmers held in virtual servitude by the exorbitant interest charged by money lenders, or I see the priceless tropical forest habitats cleared to make way for dubious palm oil projects, I know that debt is killing this planet.
Did you perhaps mean that no bankers or international financiers will die of debt!?
Dear Raymond, I agree with much of what you say, but what you quote, “HIERARCHY OF DIFFERENT COMMODITY MONEYS AS DERIVATIVES OF GOLD”, is, in my view, just a psychological and institutional phenomena. We can say as well that money is a derivative of God or of a basket of corn, tomatoes and potatoes. By linking money only to gold (or tomatoes) we would end up in the “Re Mida” tale. Of course, the State can assume as a policy goal to maintain stable the value of the money in respect to the value or gold or tomatoes, but this does not mean that the value of money depends of any commodity. It is not gold that gives value to money. It is the legal and institutional framework (including the market) that gives value and meaning to both money, gold and tomatoes.
The “real value” of money is the present and future production that it can buy.
Hi Arturo, I agree completely with your conception of money.
My purpose is not to validate the conception asserted by the central banking system in collusion with the co-opted State.
My purpose is to sufficiently understand their case in order to repudiate it in law, so that they cannot legally prevent us from implementing an ecologically sustainable monetary system, by and for the people.
As I note in section 1, Costa and Gauvin point out in their paper (Meira Costa and Gauvin McNeill, 2015) that:
“… once the doubt is raised as to the validity of the definition of money, the Judiciary is required as a matter of first impression to resolve all inconsistencies or declare all money contracts as at best indeterminable or at worst null and void.”
And they go on to conclude that:
“… both the incongruence in definition of money and the manifest technical instability of money’s function, stem from the same conceptual or ontological flaw of defining money as both an article of commercial value as well as unit of measure. As we clearly establish that the function of measure is sine-qua-non to the application of justice in such matters, we suggest bringing this issue to the public at large in support of a constitutionally based judicial review leading to the establishment of a universal formal logical definition of money as a stable unit of value measure”.
SOURCE: Meira Costa, J. and Gauvin McNeill, M. (2015) A proposal for harmonising current
disparate (scientific and legal) definitions of money towards greater decidability in the provision of Justice according to universal principles of contract law. Available at: http://www.mrcenter.info/Doc/ConferencePapers/2015/MRC_2015_Gauvin_Meira_Final_Release_Amendement_for_Publication.pdf
Dear John, you are right, I was of course speaking only of the Big Finance! The real trouble of the process of credit creation is its highly discretionary power, which has been used and abused. A typical example is to link debt consolidation to the acceptance of “austerity policies”.
Thank you Raymond and Arturo for expanding my understanding of what are difficult and obscure concepts for the layperson. Raymond, you are doing a great service to the English speaking world by translating Laloux’s work. Is there anybody out there who could translate Laloux into Mandarin, Cantonese, Spanish, Portugese, Russian, Turkish, Arabic or Hindi, for starters? So that the citizens of emerging economies in China, Latin America, etc can re-examine the development path that Western Neo-liberal dogma is putting them on?