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Natural Money

MONEY, NATURAL AND UNNATURAL

What is Money?

Because of, our long history of using money, in any sensible discussion about, money and the system which administers it, we first need to acquaint ourselves with the physical foundations of money, what it in essence is.

Money originates from the human need to make voluntary exchanges of goods and services with others. Such exchanges  are a completely natural activity for humans. In fact they are essential for our very survival both as individuals and as a species. Now exchanges are either simple or complex. Simple exchanges involve just two people and they do not require the use of money.

Complex exchanges involve three or nore people. Here one person serves as the exchange anchor because they purchase an item for price P from another person and then sell another item for the same price P to a third person. Clearly money plays a vital facilitative role in the process of a completed complex exchange.

Thus natural money is simply the externalised value of one half of the items exchanged in a completed complex exchange.

Simple exchanges are unquestionably economically sound and socially healthy. Arranging simple one to one exchanges is  very difficult to do however. They require the simultaneous satisfaction of a number of coincident conditions, i.e. both parties must be face to face, they must have with them and show the other party the item that they wish to exchange and they must be happy to accept the other party’s item in exchange for their own item. In addition a simple exchange can only happen if both parties feel that the item that they are getting in exchange is worth more to them than the item that they are losing. These valuations do not need to be made explicit in simple exchanges but they are nevertheless present in the participants’ heads.

The externalisation, in money, of these evaluations removes the logistical difficulties associated with arranging simple exchanges. The externalisation opens the way for simple exchanges to be replaced by the more easily arranged complex exchanges and as a consequence complex exchanges have become the preferred method of exchange in our society. Luckily complex exchanges, when completed, are as economically sound as the simple exchanges that they replace and once, the first complex exchange that the externalised valuations participate in is completed,  the externalisations have become honest natural money.  

Two historic problems associated with our use of money

a) Completed complex exchanges are not as automatically socially healthy as are simple exchanges.

This is because, unlike in simple exchanges, the participants do not necessarily have  sight of all the items involved in the completed complex exchange. The current money system deals with valuations only and thus makes no attempt to supply any additional information to the users of money.

b) The change in society’s preferred method of entering into exchanges means that  anyone, who has no money, is excluded from entering into the preferred method of making exchanges.

This is not necessarily a problem provided that the money system is able to supply new money to anybody who is short of enough money to enter into an exchange. It has been a problem historically however because our currency adhered to the gold standard thus money had a backing value right from its issuance so it had to be earned before it could be used. This exclusion was, and is, extremely unhealthy and completely undesirable both for the invidual and for the economy.

Money being a human creation requires a system to produce and control it thus to rectify the above historical problems the money system would need to be changed to

a) provide information in addition to value

b) give controlled access to new money to any individual in need of it.

Manufacturing new money

 

Units of currency[UoC], i.e. money, can be seen as containers to be filled with specific values. Consequently there are  two stages to the manufacturing process. Stage one is the creation of the container, i.e. a UoC, with a specific face value and stage two is the filling of the container with exactly the same value as the face value. This is known as the backing value. The backing value has historically come from diiferent sources but ideally it should only come from the value of a specific exchanged good or service.

The execution of the first stage, the production of the container UoC, must take place before the filling process. The second stage, the filling process, is the responsibility of the money system. Historically the money system has taken on this responsibility in one of two ways, either  filling by default or filling by deliberate allocation. With a fiat currency there is also the possibility of filling by natural means.

If by default, the money system takes exchanges as a given and the backing value accorded to the UoC is by theft from the backing value of the currency already in circulation. Consequently allocation by default is both morally and economically illegitimate and it happens as soon as the UoC is put into circulation. This immoral practice is only possible with fiat currencies and the Rand is a fiat currency.

PROBLEMS

 

1. In the longer term the backing value theft  debases the currency causing inflation.

2. It also immorally benefits any person, or entity, who first uses the UoC as if it had a legitimate backing value when it doesn’t. The bank that issues it as an interest paying loan, the first person to spend it because the theft of the UoC’s backing value will not have had, as yet, enough time to debase the currency. This practice is the cause of the constant creep of financial wealth up the economic pyramid as those who already have money are generally the first users of new UoCs.

If by deliberate allocation then, from issuance, a new UoC is legally compelled to get its backing value by allocation from the value of a fraction of the State’s commodity holding. This practice is known as adhering to the gold standard and the resulting currency is non-fiat.

PROBLEMS

1. As money has a legitimate backing value from issuance those who are short of enough money to complete a purchase are compelled to first earn money from those who already have money. Thus a community that is generally short of money will be severely hampered from entering into exchanges and will tend to become economically inert.

2. Economic activity is restricted becaue the amount of money in circulation is determined by the total value of  the State’s commodity holding not by the volume of desired complex exchanges.

If naturally can only happen if the currency is fiat, but the money system must have a mechanism to issue new UoC’s, as debt to anybody who is short of enough money to enter into an exchange. Subsequent settlement of the debt ensures that the allocation of the backing value of the new UoCs arises legitimately from their involvement in their first, completed, complex exchange.

PROBLEMS

None.

The natural allocation of a legitimate backing value to new UoCs clearly requires the money system to keep tight control of the issuing of new money and its subsequent removal after usage. That is why it is useful to view UoCs as contracts, contracts existing between their holders and the community.

Money as a contract

From a user’s perspective a very useful way to view a unit of currency[UoC] is as a two clause contract existing between the individual and the community. The first clause applies to both fiat and non-fiat currencies, and the second clause applies only to fiat currencies.

The clauses are:

(a) If the holder of a UoC earned the UoC through the supply of a good and/or performance of a service to, or for, the community then the community is obliged to supply a good and/or service of the same value in exchange for the UoC.

)b) If the fiat UoC was issued by the community to the holder then immediately the holder spends the UoC the holder becones indebted to the community, to the value of the UoC, and is obligated to supply, i.e. sell, a good and/or service into the community to settle the debt.

Implementing the money contract

The implementation of clause (a) of the contract is the responsibility of any member of the community who offers goods and/or services to others in exchange for UoC(s).

The implementation of clause (b) of the contract is the responsibility of the money system alone. In order to do this the money system has to be able to

1. Check to see whether or not the recipient will exceed their ‘interest free new money debt [NMD]’ limit

2.  If not, produce the required new UoCs at the point of purchase and add them to  the recipient’s total outstanding NMD

3. If yes, do not issue any new money to the recipient and report, to the recipient, why this has not been done.

The availability of smart phones, appropriate Apps and the Internet makes the above quite feasible.

Problems with the current Implemention of clause (b)

Currently clause (b) is only partially emforced. This even though the Rand has been a fiat currency since the 1970‘s. In some respects the money system treats the Rand as though we still adhered to the gold standard, and we don’t. This erroneous assumption means that the money system does not enforce clause (b) and leaves it open to others, e.g. the banks, to do so.

The banks, in the interests of their businesses, offer new money loans to their customers but do not enforce clause (b) except for granting 30 days interest free new money debt [NMD] to the holders of credit cards.

The negative consequences of the above are:

1. the unbanked are unable to enter into complex exchanges unless they previously earned money

2. endemic inflation and the constant creep of financial wealth up the economic pyramid.

The credit card service is economically legitimate because credit card holders are expected to pay off their ‘interest free’ NMD within 30 days thus enforcing clause (b) of the contract.

 

The banks enter into illegitimacy and immorality however when they charge interest on NMD older than 30 days. They do the same when making new money long term loans

and charging interest on them. This is immoral and illegitimate because the interest is being charged on stolen backing value. In addition the receiver of the loan inadvertently gains from exercising ‘the first user advantage’ of the new UoCs.

Righting the money system

What has to be done is that our money system must be changed to recognise that the Rand is a fiat currency and that a holder history is curently missing from UoCs. The desired money system will thus

a) enforce clause (b) of the UoC contract

b) attach a UoC holder history to every UoC.

This task is technically quite possible. The difficulties in implementation will lie in drumming up the social will to do it. Once the social will is there the political will will follow. I hope that the  facts given here speak for themselves. Thus the next step is the formation of a civil society group dedicated to informing Joe public about the physics of, money and the money system, as outlined here. Those interested in forming such a group are invited to get in touch with me, my email is: rorys (at) homemail.co.za  

 

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RET

RADICAL ECONOMIC TRANSFORMATION – Dave Steward

Earlier this week Nkosozana Zuma, odds on favorite to become our next president, assured whites that they have nothing to fear from Radical Economic Transformation (RET) “because if it doesn’t happen peace cannot be guaranteed in the country.” What is this “radical economic transformation” that her former husband, President Zuma, refers to in virtually every major speech – and where does it come from?

RET’s origins may be found deep in the ANC’s Marxist-rooted National Democratic Revolution ideology which has as its core goal “the resolution of the national grievance arising from colonialism and apartheid”.

The ANC believes that although it achieved political liberation in 1994, it has not yet achieved economic liberation because – as President Zuma incorrectly insists – the economy is still controlled by “white males”.

The ANC continues to view itself – not as an ordinary political party – but as a national liberation movement with an uncompleted revolutionary mandate. Because “the continuing legacy of colonialism and white minority rule” is the “defining reality of our society”, its core revolutionary task is the achievement of ‘economic liberation’ through Radical Economic Transformation.

President Zuma describes this as “a situation of contending forces with antagonistically contradictory interests domestically and globally” that “Marx and Engels would have understood … very well.” It is a struggle in which, according to Marx, “the oppressor and the oppressed” stand “in constant opposition to one another” in “an uninterrupted, now hidden, now open, fight…

The ANC’s “enemy’ in the RET process is “white monopoly capital” – which actually means all whites – since all whites are subject to the ANC’s discriminatory policies irrespective of their income, wealth or education. President Zuma regards whites as manifestations of what SACP ideology calls ‘colonialism of a special type’, a situation in which “the colonised stay in the land with the colonisers after freedom”. As he told the Youth League in July, “they took land, power, your dignity and everything. When we were liberated, they stayed here…. In those other (African) countries, they were administrators, and when you were freed, they left…. The ball is in your court young people to liberate ourselves economically… If we don’t, we will suffer for many years to come.”

RET’s central goal is the elimination of ‘apartheid social and economic relations’. This will be achieved through the “de-racialisation of ownership and control of wealth, including land; and equity and affirmative action in the provision of skills and access to positions of management”. It will culminate in the establishment of a “National Democratic Society” in which

– all the significant levers of state power will be controlled by the “democratic forces” (i.e. the ANC);

– “apartheid property relations” will have been eliminated; and in which

– there will be demographic representivity at all levels of ownership, management and employment in the public, private and non-governmental sectors.

In his State of the Nation speech earlier this year, President Zuma quoted a 1981 statement of Oliver Tambo to the effect that it was “inconceivable for liberation to have meaning without a return of the wealth of the country to the people as a whole. To allow the existing economic forces to retain their interests intact is to feed the roots of racial supremacy and exploitation, and does not represent even the shadow of liberation.”

According to the President RET means a “fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female, as defined by the governing party, which makes policy for the democratic government.”

Of course, the beneficiaries of RET would not be “all South Africans” – but elements in the ruling faction and its associates. In effect, those involved in state capture, having looted the SOEs and the public sector, are now eyeing the lush pastures of the private sector as their next area of unrestrained despoliation.

RET would inevitably have a catastrophic impact on the economy, on the vast majority of citizens, and on national unity. It implicitly requires a severe dilution of property rights, massive intervention by a corrupt and incompetent government and a concerted assault on the legitimate rights of millions of South Africans solely on the basis of their race. It would inevitably drive away investment and essential skills and precipitate economic collapse on a Venezuelan or Zimbabwean scale. It would result in untold deprivation, suffering and social and racial conflict.

RET is an intensely racialized process that must once again “place the interest of the black majority right at the centre of our political programmes”. Political liberation is not enough: the objective of political power is “to penetrate all other sectors of power and break once and for all the backbone of apartheid colonialism which is monopoly control of the economy.”

It would be a mistake to dismiss all this as empty rhetoric. The public sector has already been transformed in accordance with demographic representivity; tightening BBBEE regulations are making it increasingly difficult for white owned companies to do business – and throughout the economy and at our universities whites are loosing jobs to enable their employers to meet increasingly stringent racial quotas. The latest example is the Mining Charter – which would effectively destroy the mining sector were it ever to be implemented.

Where does all of this leave those who do not belong to the black majority – and who have not been consulted about the ANC’s plans for them?

Not in a very good place. The ANC’s Strategy and Tactics documents envisaged that the proposed redistribution of wealth on racial lines would inevitably elicit a reaction from its intended victims “because property relations are at the core of all social systems.” It believed that the tensions caused by the decisive pursuit of this objective would require “dexterity in tact and firmness in principle.”

Perhaps the most remarkable aspect of RET is the almost complete lack of any coherent reaction from its intended victims – the great majority of whites and white-owned businesses. There are, perhaps, a number of reasons for this lack of reaction:

– Most of them do not have the vaguest understanding of the ANC’s ideology or of the seriousness of its revolutionary agenda. They are not aware that their government regards them as its principal antagonists in a titanic revolutionary struggle. Hence they tend to dismiss RET as incomprehensible gobbledy-gook;

– Beyond this, most white South Africans are loath to self-identify according to their race. They do not want to be driven into a ‘white corral where they will be judged according to their race;

– Others have bought into the ANC’s propaganda regarding their indelible guilt for the past and for all the country’s continuing problems. They have been silenced by what Helen Zille calls “speaking while white” which is the ultimate sin in terms of “critical race theory”;

– There is no one that can – or wants to – speak on their behalf – not the political party to which most of them belong; not civil society; not business.

The ANC is probably surprised by a lack of any significant push-back. In a manifestation of “dexterity in tact” it issued a statement on 26 June, reassuring white South Africans that “the struggle of the South African people led by the ANC was and remains a struggle against racial domination not a struggle against a particular race. The ANC remains committed to resolving the national grievance not by fighting white people, but fighting the system of oppression and its legacy.” Nkosozana Zuma’s statement should be viewed in the same light.

The ANC’s reassurances are patently untrue. In resolving “the national grievance” RET is clearly intended to deprive ordinary South African citizens of property, jobs and land on the basis of their race. This is the only interpretation that can be placed on President Zuma’s definition of RET – and on his view that white South Africans are alien and unwanted relics of “colonialism of a special type”.

President Zuma’s statements and the ANC’s own documentation make it perfectly clear that RET is at heart a racial struggle – and that its goal is not the elimination of domination – but the imposition of a new and comprehensive form of racial domination – of the kind that Nelson Mandela promised we would never, never and never again witness in this beautiful land.

As President Zuma told the MKMVA on 12 June, “Freedom means that you must be in control of everything, politics, economy and the security of the country.”

Dave Steward is Chairman of the FW de Klerk Foundation

ANC Corruption by R W Johnson

The ANC, Mandela and the myth of the ‘moral high ground’

RW Johnson says many of those who condemn the organisation now still delude themselves about its past character

Naiveté and Corruption

This week’s Mail and Guardian[1] carries an editorial entitled “Women’s Month just proves it: Our leaders are trash”. There follows the usual sort of feminist/PC slant with the final hashtag of #MenAreTrash. This is, of course, jejune, especially since some of the trashiest cabinet members (Bathabile Dlamini, Faith Muthambi, Nomvula Mokonyane) are women, but what is perhaps more notable is the Mail and Guardian’s quite casual scorn. This, after all, is the newspaper which long prided itself on its liberation movement political correctness and which, more than any other, revered the ANC leadership which, it never ceased to tell us, occupied “the moral high ground”. Similarly, Mamphela Ramphele refers to our political leaders as “thieves” and no one contradicts her. The press quite openly discusses the date at which the President is likely to flee the country with his loot. And so on. It might appear that all previous naiveté has been dispelled – but this is not so.

The “moral high ground”

Let us go back to the early 1990s when the theory of “the moral high ground” was at its height. This theory depended largely on ignorance as well as the more understandable notion that those demanding universal suffrage must be on the “right” side in everything. In fact, as is now entirely visible, the demand for universal suffrage did not denote any particular concern for the masses – it was merely the mechanism which would guarantee power for the ANC elite. Nonetheless, the notion of “the moral high ground” had wide currency and was further strengthened by the towering figure of Nelson Mandela whose courage, commitment and sacrifice no one could question. Yet to anyone who had known the ANC in exile the idea that it held “the moral high ground” was simply laughable, for the party was already no stranger to corruption, torture, tribalism, the denial of human rights and the abuse of women.

It is no exaggeration to say that this myth of the “moral high ground” was sustained only by sheer denialism, by a studied aversion of the eyes from these well-known faults. This held true even as the first signs of a new corruption became clear as one ANC leader after another quickly developed wealthy white “godfathers”. I asked Anton Harber, then editor of the Mail and Guardian, why his paper was paying so little attention to this alarming new phenomenon. He replied indignantly that having campaigned so strongly for liberation they had no wish to embarrass the new black elite. This sort of attitude was widespread. There was a rush among white opinion-makers to befriend the ANC and anyone who brought up such matters, let alone things like the use of torture in the MK camps, was thought to be churlish, perhaps even pro-apartheid.

The new ANC elite could not have hoped for such luck: a key newspaper deciding that news of budding corruption should be treated as non-news. They were not slow to take advantage. Even before 1994 Joe Modise, the putative defence minister, had made contact with various large arms manufacturers, had established contact with many old apartheid security apparatchiks and was a frequent attender at European air shows and the like: everything was ready to go.[2]

Although there was strenuous resistance to his proposed arms deal from a whole series of Cabinet heavyweights – including Joe Slovo, Trevor Manuel and Jay Naidoo – Modise was able to ram it through thanks to his key alliance with Thabo Mbeki. Thereafter, Mbeki was to play a key role in the arms deal at every point, making the key decision to buy the BAE Hawk trainer although it was 72% more expensive than the Aeromacchi (Italian) plane which the SAAF wanted. It was Mbeki too, who was to play the decisive role in suppressing all attempts to investigate corruption in the arms deal. In this, of course, he was immensely assisted by the notion that he – and even Joe Modise – were still men on pedestals, occupying “the moral high ground”. They were laughing all the way to the bank.

South Africa’s Woodstein[3]

A peculiarity of these attempts was that Andrew Feinstein (ANC) and Gavin Woods (IFP), who led the doughty fight in Parliament to investigate the deal only launched their efforts a year after the deal had been finalized in 1999. This was really slamming shut the gate only after the horse had well and truly bolted for, naturally, the guilty parties had by then gone to great lengths not only to hide their loot but to wipe clean any footsteps in the sand. Feinstein and Woods both deserve great admiration for the courage and tenacity they showed under appalling pressure but both men were ultimately forced out of Parliament with their objective unachieved. Feinstein has since written in extenso about his experience of the arms deal investigation[4] and, having emigrated to the UK, is the executive director of Corruption Watch UK.

Yet the fact was that South Africans were extremely slow to smell a rat in the arms deal. For anyone interested in such matters there was already a large literature about arms deal corruption around the world going back for hundreds of years. For the more recent period a handy summary was found in Anthony Sampson’s book The Arms Bazaar, published as long ago as 1977. By the 1960s and 1970s the Third World had become a booming set of markets for the arms companies, often despite official attempts by their own governments to restrain such trade.

The Pentagon was alarmed to discover, for example, that despite an official arms embargo in the 1965 Indo-Pakistani war, Indians in (American) Sherman tanks had fought Pakistanis in (American) Patton tanks and that despite the embargo Pakistan had mysteriously just received 90 North American F-86 Sabre jet fighters[5]. Everywhere, of course, corruption was involved: in Suharto’s Indonesia, for example, Lockheed did deals with senior Indonesian Air Force officers. In return for lucrative orders Lockheed paid their bribes into a specially set up account in Singapore called the Widows and Orphans Fund[6].

Third World markets were almost made for the arms companies. Most of the countries were extremely corrupt to start with, including (and often especially) their political leaders. They were also poor, often very poor, which meant that the bribes didn’t need to be so extravagant as, for example, those paid to the Italian prime minister, Giulio Andreotti. And they had Trumpian generals and defence ministers keen to buy advanced technology simply for prestige reasons and to secure their bribes. As in South Africa’s case, they often had little real need for this hardware except for fly-pasts and parades and as a result it was poorly maintained and soon un-usable[7].

If one looked at a number of these deals one quickly realised that usually a number of people had to be bought off. Some of these bribes could be quite small, for example the discounted Mercedes sold to Tony Yengeni, the chairman of the relevant parliamentary committee. But usually the big bucks had to go to two people: the defence minister, who negotiated with the arms companies, and the president or prime minister, who had either personally to authorise the large expenditure involved or push it through his cabinet. In every Third World arms deal those are the two people one should look at first.

The Mandela problem

Feinstein says that “I describe the arms deal and both the corruption in the deal and the efforts to cover up that corruption as being the point at which the ANC lost its moral compass”[8]. In his more recent Daily Maverick article he elaborates by saying that actually this point was first made in a Mail and Guardian editorial, with which he agreed. That is to say, Feinstein seems to believe that the ANC had been on the right moral path right up to the time that he left them and has been on the wrong moral path ever since. What allows him to feel this, of course, is that 1994-1999 were the Mandela years. When he left Parliament he wrote to (ex-) President Mandela saying that “it has been a privilege and an honour to serve you”. Thus he implicitly exonerates Mandela from any role in the arms deal.

But how realistic is this? The whole deal was carried out and concluded under Mandela’s presidency. Even if Mandela was a somewhat detached president, it is surely hard to believe that he was unaware of a R60 billion arms package making its way through his cabinet? And this deal was fiercely disputed by some of his most senior ministers, like Trevor Manuel – who were bound to raise their concerns with him. It is surely impossible to believe that Mandela heard nothing of this dispute or that he was not asked to make a ruling on the matter? Similarly, at one point Feinstein relates how he was told by some of his ANC comrades that it was money from the arms deal that paid for the ANC’s (huge) election expenditure in 1999. If that is so, it means the money must have come in well in advance of the election – when Mandela was still president. Again, surely he could not have been ignorant of that?

In other words the question has to be not whether Mandela had any involvement in the deal – for he surely did – but whether he personally benefited from it. We have, of course, no evidence for that. It is perfectly clear that Modise was a major beneficiary. A number of smaller beneficiaries are known but the two big question marks are over the deal’s contribution to ANC election funds whether and by how much Thabo Mbeki was a beneficiary? Again, little direct evidence exists – though when newspapers printed stories of Mbeki having taken a large bribe, he made no move to sue or even to deny the story.

But the question about Mandela won’t go away. It is probable that instead of a direct gift to him, the arms companies donated to the ANC, knowing this was close to his heart. He had, after all, shown few scruples about raising enormous funds for the ANC from extremely dubious and shady donors. And he had personally benefited from gifts from wealthy donors – including his luxurious house in Houghton. He had also clearly known of and tolerated a good deal of corruption in ANC ranks in the 1994-1999 period.

When Allan Boesak was pursued by the Danish church authorities, Danchurch, Mandela took Boesak’s side – although the facts of his peculation were all there in his bank accounts. Indeed, Mandela went on TV to say that Boesak was “one of the most gifted young men in this country, who deserves a very high position”. Since Danchurch had incontrovertible evidence of Boesak’s thieving and his payments to a number of lesser lights such as Christmas Tinto and Chris Nissen, they maintained their case. Whereupon Mandela again went on TV to claim that the accusations against Boesak were “baseless” and he had very hard words for those who thought otherwise[9]. There was even talk for a while of Mandela organising an international sanctions campaign against Danchurch.

But Mandela was no fool. He must have known that Boesak was guilty and that within ANC ranks he was hardly alone in his corruption. As far as one can see, Mandela’s attitude was that if someone had proved himself a good ANC comrade then a variety of other offences, including corruption, could be overlooked: they were just part of the struggle. In the same way Mandela could appoint a tired old man like Raymond Mhlaba as premier of the Eastern Cape and then ambassador to Uganda even though it was obvious that he was completely unable to do either job. He just needed the money. Or again, Mandela insisted that Jacob Zuma be made ANC Deputy President despite Mbeki’s strong resistance (who wanted an acolyte like Netshitenzhe.). It is foolish to imagine that Mandela was unaware that Zuma was corrupt: many people within the ANC knew this[10].

And Mandela was a perfect exemplar of the struggle mentality: what the ANC did was right and it must be defended under any and all conditions. When ANC gunmen shot down IFP marchers from Shell House – straightforward murder in the streets of Johannesburg – Mandela defended the gunmen and refused to allow them or their weapons to be handed over to the police. Doubtless, he felt the honour of the ANC was somehow at stake and that it was unthinkable to own up to the murders and give the IFP a political victory of sorts. Some of the IFP marchers were captured and held for some days in Shell House where they were tortured. Mandela made no apology for this.

It should be obvious that such a mentality opens wide the door to corruption for if there was an unconditional solidarity behind ANC cadres and leaders, some of them were bound to take advantage of the immunity which that practice bestowed. In exile Joe Modise, for example, was well known to be a criminal and to live an extremely luxurious life style – yet no one denounced him for this and he remained the commander of MK. The importance of this is that there was never a golden age when there was no corruption in the ANC. It was always there and the struggle mentality enabled it.

The not-so-crazy Bheki Jacobs

Perhaps the key moment in Feinstein’s book is when he relates how Bheki Jacobs – a veteran ANC spy and undercover agent – came to see him and for several hours tried to take him through an ABC of the arms deal and also to enlighten him a little about the organization which he knew so well. He told Feinstein that actually the whole arms deal scam was plotted long before the ANC came to power in 1994. According to Jacobs the arms deal originated when, during the Codesa talks, Pik Botha and various other ancien regime elements “persuaded Joe Modise and Thabo Mbeki that the ANC could access millions of dollars from arms companies if there was sufficient contractual reward for the companies once the ANC was in government. He (Jacobs) then went on, crazily, to allege that the ANC was full of murderers, drug dealers and common criminals.” Feinstein records that this left him “punchdrunk and exhausted”.[11]

It is a pity that Feinstein didn’t pay more attention to Bheki Jacobs, a man who knew where all the bodies were buried and whose long acquaintance with the less salubrious side of the ANC had given him sufficient detachment to be frank about it. More generally, it was a pity that he didn’t think a bit more about the fact that the great formative growth phase of the ANC occurred in the world of apartheid era townships in 1950-60.

For anyone who grew up or came of age in that world, murders, crime, drug-dealing and a host of other social ills were a familiar part of life. Anyone who had bothered to ask around Baragwanath hospital in Soweto knew that every Monday without fail the doctors would find themselves dealing with hundreds of stabbings which had occurred over the weekend. Casual and domestic violence on that scale was just one indicator of the social conditions under which all urban Africans had to live.

The township world

In the world of the townships, then and now, gangsters form the elite. They are not only the ones able to prevail by force – they have the guns and the numbers – but they are the ones with money, the smart clothes, the cars and, of course, the women. And usually – even in the 1950s – the gangsters also have their own arrangements with the police. If gangsters get killed it is in a shoot-out with other gangs, not with the police. In the 1950s gangs like the Americans and the Spoilers were, indeed, seen as stylish, almost chic. Joe Modise was one of the Spoilers, though he was hardly the only one to graduate from crime into the ANC leadership.

As Eric Hobsbawm showed long ago[12] there has long been a symbiotic relationship between bandits and guerrillas, with bandits often becoming “freedom fighters” but then, if defeated by the reigning regime, with the guerrillas drifting back into banditry. And of course, urban equivalents are common too – think of the way Ali the Pimp becomes an FLN urban guerrilla in The Battle of Algiers or the way that some French ex-Resistance fighters became bank robbers.

Indeed, the 1950s musical King Kong (set in Alexandra township) provides a fair picture of how easily township people lived (and live) amidst criminality as an everyday thing. The boxer King Kong (Ezekiel Dlamini) and his trainer, Jack, naturally repair to the shebeen, a (then) illegal establishment run by the shebeen queen, Joyce. Before long the local gangsters, the Prowlers (clearly based on the Spoilers) come in, led by Lucky. They are far more smartly dressed than the others, their tilted trilby or fedora hats giving a noticeable gangster chic. They are used to getting their way: they threaten anyone who challenges them and Lucky is seen paying off the local policeman who, naturally, comes to relax in the shebeen too, illegal though it may be. Joyce at first becomes King Kong’s lover but as his fortunes decline she quickly deserts him for Lucky. When King Kong sees her with Lucky his response is immediately violent and he ends up knifing and killing Joyce. This leads to his conviction and almost immediate suicide.

King Kong was a faithful, albeit somewhat romanticized, representation of 1950s township life – a world in which criminality is commonplace and violence always close to the surface. And this is the world from which the ANC leadership sprang. Boxing had great social significance in that world for it was almost the only way in which a black man might rise right to the top – King Kong dreams of fighting for the heavyweight crown in London. It is perhaps no accident that Mandela was for a time ambitious to be a boxer and is often depicted in his boxing gear and stance. But just as King Kong’s day was brief, so was Mandela’s. The triumph of the gangsters always seems inevitable, something one should bear in mind when one hears Jeremy Cronin talking of the Zuma/Nkosasana group as the ANC’s “gangster leadership”. Mandela had his day but in the end township reality was more important and within fifteen years the gangsters were in charge. This is the new normal and it will be far harder to change.

The exile culture

For the ANC leadership on top of that violent township culture was laid the culture of exile, in many ways a traumatic experience. Almost all the exiles were desperately homesick. They lived in a world of extreme patronage in which all resources, including the basic means of subsistence, came from a very few donors – overwhelmingly from the Communist bloc. These were funnelled to a handful of top leaders to dispense, giving them absolute power over all cadres who thus existed in a state of complete dependence.

Anyone who rebelled could be immediately expelled and cut off from all funds and from access to any of their comrades. This was the basis of the Stalinist discipline which the leadership was able to exert and police. Often, cadres might notice a degree of favouritism in the distribution of patronage – Tambo favouring Xhosa applicants for scholarships over Zulus, for example – but there was absolutely nothing they could do about it for open dissent was very dangerous.

In the extreme case of the MK fighters in the camps who rebelled, they were imprisoned, beaten, tortured and sometimes killed. Naturally, corruption thrived in such an atmosphere, partly because large resources flowed through very few hands and simply because it was so dangerous to criticise the leadership whatever they did. When Chris Hani had the nerve to criticize Modise, one of the most corrupt, Modise attempted to murder him. Hani narrowly escaped while Modise suffered no ill consequence for his behaviour.

In this oppressively closed world there was a powerful spirit of paranoia, with everyone always on the watch for spies, askaris, imperialist agents and the like. There had been nothing like this in the ANC at home in the 1950s. This new paranoia was deliberately cultivated by the SACP and the leadership in general both as a matter of ideology but also because it strengthened their own control. To a degree that many would find almost unimaginable, the party ruled every area of life.

When I had ANC exiles as students in those years they would need ANC permission to marry anyone (and it usually had to be to an ANC cadre). If they split up they might then come under extreme party pressure to get back together with their old partners. If they were students their area of study would have to be approved by some ANC high-up and if they wanted to publish any of their research, this could only be done with ANC permission. And so on and on. Naturally, the exiles who have made up the ANC leadership ever since 1990, brought this exile culture back home with them. It has infused the whole ANC and this exile culture still exists as an overlay on the old township culture.

Anyone who reflects on that world for any length of time would hardly have thought that what Bheki Jacobs was trying to tell him was “crazy”.

Losing the “moral compass”

That Feinstein could use the word “crazy” is, indeed, the key. He clearly came to the ANC, as did many other whites (modify) from a far more liberal, educated, sophisticated and prosperous world. The ANC he wanted to believe in was its idealized version, the public image it sought to project (particularly abroad) – a highly principled organization led by heroic and incorruptible men whose followers were equally righteous and disciplined. That is to say, like not a few other whites who joined the ANC, he had no idea of what sort of organization he was really joining. Even when he was flanked on all sides by criminality (Boesak, Modise, Yengeni etc) and by enforcers (like Essop Pahad and, ultimately, even Frene Ginwala) he continued to believe that he was still living inside his idealized version of the ANC. This is why its huge corruption came as such a nasty surprise to him.

Amazingly, Feinstein (and he is hardly alone in this) continues to cling to that idealized notion. This is how he can claim that the arms deal was the moment when “the ANC lost its moral compass”. What he really means is that this was the moment when he woke up to a little – by no means all – of the reality of the organization he had joined. In practice, as we all know, men do not suddenly “lose their moral compass”. It is just a figure of speech. In practice, as any criminologist will explain, patterns of criminal behaviour are usually rooted deep in the experience and milieu of childhood, and of course it is much the same with organizations.

One might, for example, attempt to explain Stalin’s mass purges of the 1930s simply by reference to Stalin’s character, but anyone familiar with the history of the CPSU knows perfectly well that Stalin himself had a criminal past and that after coming to power the early Bolsheviks used murder, torture, reprisals against whole families and communities and every other sort of extreme ruthlessness. Extreme violence on a mass scale was a basic trait of the organization long before the 1930s.

It may seem odd to say that Andrew Feinstein, the head of an anti-corruption NGO, is naive about corruption. Perhaps better to say naive about the ANC. He is wholly admirable man whom I have used merely as an example of a much more widespread frame of mind. This is seen much more widely today in the way that commentators and people at large – both inside and outside the ANC – employ a narrative in which the old Mandela ANC is seen as clean, heroic and principled, with a vast moral degeneration setting in only under Zuma.

This is a completely ahistorical vision: today’s ANC has grown quite organically from the Mandela ANC which, in turn, was a great deal less pure than now depicted. And Zuma is where he is today precisely because Mandela insisted on making him ANC Deputy President despite, doubtless, knowing of Zuma’s proclivities. Yet this dichotomy between the old heroic ANC and the modern corrupt ANC is so strongly established in so many minds that one can find, even now, people who became ANC members without the least notion of what sort of party they were joining.

When at last such people collide with the reality of what the ANC is, they leave, usually claiming that the ANC left them, not vice versa. Frequently, as with Feinstein, they still maintain the mirage of the old heroic and “pure” ANC and continue to profess loyalty to its imagined values. Many of the disillusioned remain within the movement, but usually clinging to another mythological narrative – that the revolution was sold out in the early 1990s when Mandela made a deal with white capital. In fact, of course, this is pure invention: there was no such deal. These are all just coping mechanisms caused by idealism and naiveté´ in the first instance and, later on, the belated recognition of a much sadder truth.

R.W. Johnson

DEMOCRATISING NEW MONEY

Introduction

Why money?

The first flaw

The second and third flaw

   Face value vs Backing value

   How money works psychologically

       Gaining backing value the inflationary Way

       Gaining backing value the inadvertently honest way

The Current Money System

A Reformed Money System

    Essential Requirements

    Benefits of

_______________________________________________________________________

Introduction

In order to have a healthy economy we desperately need to reform our Money System. Why? Because it is through money that our economy functions and any flaws in how the money system operates will negatively effect the health of the economy and all of us as individuals.

The money system is responsible for:

a) issuing new money into and removing old money from, circulation

b) controlling who can trigger the production of new money

c) money only representing value, no information is  contained within money about what is valued.

It is with regard to a, b & c above that the flaws are to be found in the current money system.

Why money?

We have to start with this question, why do we need money in the first place?

It is because money is an unsurpassed support for our economic activities. Our economic activities consist of voluntarily exchanging goods and/or services with one and other and such voluntary exchanges are not only necessary but vital to the continued survival of us all.

A satisfactorily completed voluntary exchange of goods and/or services creates a healthy economic event and the accummulation of healthy economic events  creates a healthy economy.

Now economic events can be split into two different categories, simple exchanges and complex exchanges.

A simple exchange involves two parties who voluntarily make a ‘quid pro quo’ exchange of two items, the items being either a good or a service. The two items are obviously of at least equal value, in the fullest sense of the word, in the eyes of the two parties otherwise the exchange would simply not have happened. A completed simple exchange is thus a naturally healthy economic event.

The trouble is simple exchanges are logistically very difficult to organise. This is because of the number of coincident conditions that are a pre-requisite for the exchange to happen. These conditions are: Both parties have to have, at the same moment in time, an item that they are willing to exchange and both parties must be present to each other and happy to accept the other party’s item in exchange for their own item.

The invention of money removed these  logistical difficulties. Money, being a socially accepted record of value, enables the above compulsory conjunction of coincident events to be dis-associated in  time and place. Because money is an independent record of value it opens the way for one of the parties to the exchange to be replaced by two, or more, different parties. This enables the remaining party to purchase an item that they want from somebody and then subsequently sell, for the same price, their own item to somebody else who wants it. This sale completes the complex exchange economically and in this way, what would have been a simple exchange if it could have been organised, has, through the use of money, enabled a collection of transactions to become a complex exchange.

Not surprisingly, the removal of the logistical hurdles inherent in simple exchanges by enabling them  to become complex exchanges,  has resulted in the demise of simple exchanges. This has opened the way however for the emergence of a different set of problems, or flaws. This time, not so much with exchanges per se, but with money itself.

The first flaw

First because all the participants  in  a complex exchange do not have sight of one and other, or of all the items involved in the completed exchange, the health of complex exchanges is not a natural given. To remedy this lack of information, for the participants in a complex exchange, the participants need to be informed of the sources of the backing value of the money used in a complex exchange. To this end the money system should record identities of the successive holders of any Unit of Currency[UoC] and be able to make these identities known to anybody upon request.

The second and third flaw

These flaws are not as conceptually simple to discuss as the first flaw however as they are the result of the money system ignoring the conceptual  differences between the face value and the backing value of a UoC. When  the conceptual differences are ignored by the money system the way opens for discriminatory access to new money as well as the fraudulent use of the new money.

What is the face value of a UoC? It is the amount recorded on the UoC as it is produced.

What is the backing value of a UoC? It is the value the UoC earns either honestly 

 a) through its participation in its first completed complex exchange, or dishonestly

 b) by theft through skimming off some of the backing value of the money already in circulation and as

 this theft debases the currency the backing value is inevitably less than the face value

The trouble is neither the backing value nor its source is physically discernable whereas the face value is so people naturally presume that the backing value exists and is identical to the face value. This presumption opens the way for the commission of two possible immoralities 

 a) preventing some people’s access to new money and

 b) fraud.

Face value vs Backing value

When we operated with commodity based currencies recognising the distinction between face value and backing value was not necessary because,  right from its point of issue into circulation, a newly issued IoC had a backing value, it was in a specific fraction of the State’s commodity holding. This is not the case with fiat currencies however and we have been using fiat currencies since the 1970‘s.

A fiat currency is money in its purest form. It is just a socially accepted record of value, that is all, and thus the first issue that has to be resolved for any fiat UoC is this, ‘The UoC represents the value of what?

Because money records the value of exchanged goods or services a newly issued UoC has to get its backing value from the value of such items. Ideally this happens as the result of, a well orchestrated, completed complex exchange of goods and/or services.

Now as the completion of a complex exchange is not visible to the participants in the exchange its completion has to be ensured by the money system.

How is the money system to do this?

The money system needs to do so by only issuing new UoCs, as non-interest paying debt, at the point of a person making a purchase of goods and/or services. Once the person’s ‘new money debt’ has been settled that signals that the complex exchange is completed and therefore that the new money has gained its backing value, quite naturally and honestly.  

When new money is issued not linked to a specific purchase, the current situation, it has to come by its backing value in either one of two basically dishonest ways but here we need to first see how money works psychologically in order to understand how the wrongs relating to backing value  creep into the money system.

How money works psychologically

Money relies on public trust. Money only works as a record of value because the public trusts that it has the backing value for its face value. This trust applies whether the money is newly issued into circulation or not. What this means for newly issued money is that whether it has, or does does not have, the value of actual goods and/or services behind it to back  it up, the public will treat it as though it has such a backing value.

Gaining backing value the inflationary way

 a) if the economy is not growing skimming it off the money already in circulation or

Gaining backing value the inadvertently honest way

 b) if the economy has grown sufficiently to warrant the new money then it does not have to skim it off

 the already existing currency and therefore the currency is not debased by its issue. This is, inavertently  honest when viewed at the level of the currency and therefore the community but the trouble is the

 banks issue the new money and profit from its stolen backing value, not the community.

The Current Money System

The current money system operates in problematic ways.

Firstly new money is only available to the already banked through loans and credit cards. The unbanked have no access to new money which they, like everybody, need access to when they are short of money to complete purchases.

Secondly new money is issued by banks as interest paying debt, either long term, e.g. housing loans, or short term, e.g. credit cards.  As a fiat currency has no backing value on issue the banks charging interest on the stolen backing value is a fraudulent practice benefitting the banks rather than the community.

However short term loans escape being fraudulent at the individual level during the first month of debt, because courtesy of the banks, they are usually interest  free. If the card holder misses the settlement due date however then the fraud is activated because then interest is charged.

The interest charged on long term loans is fraudulent from day one and in addition such loans debase the currency until they are paid off. The only exception occurs at the community level if, by good luck, the economy is growing faster than new money is being issued into circulation then no currency debasement will occur but the banks as institutions are still gaining at the community’s expense having appropriate the backing value of the new money to themselves when it actually belongs to an indefinable other and by default therefore belongs to the community.

A Reformed Money System

Essential Requirements for

The details of such a reformed money system would need to be worked out and agreed by all stake holders but they will need to include the following:

1. A switch to a completely digital currency

2. Acceptance of government resonsibility to ensure that every person has the use of a cell phone to serve as an electronic wallet

3. The establishment of a completely apolitical Central Currency Authority[CCA] to manage

a) money

b) the money system

c) users of money

4. The issuing and management of all new money to be the sole responsibility of the CCA

5. The exclusion of any and all financial institutions from issuing and handling new money

6. The keeping, with each Unit of Currency[UoC], of a  history of the identities of its holders  

7. The acceptance that all cash transactions, deposits or disbursements, will begin their lives through engagement with the CCA’s systems.

Benefits of

 

All sorts of immediate, and possible, future benefits will flow from the implementation of the above seven things

1. The end of money system induced

a) poverty

b) inflation.

2. Every one without exception will have access to new money should they need it to complete a purchase.  

3. Removal of the costs associated with the handling and securing of physical money. Digital money will of  course have its own security requirements, which because monetary transactions are already digitised, are already being catered for in many ways.

4. The possibility of eliminating all crimes founded on the conversion of stolen or illegal items into money as money will no longer be anonymous

5. The posssibility of replacing the present tax collection system with a minimal levy applied to all cash transactions as these transactions will all have to pass through the CCA’s systems. This will vastly reduce the costs currently associated with tax collection.

6. The massive simplification of the logistics of disbursing any public money to citizens.

 

 Rory Short 2017-04-22

Identifying & Overcoming Flaws in the Money System

Introduction

Why money?

The first flaw and its solution

The second flaw

    Why money works

    The Problematic Way of gaining backing value

    The Honest Way of gaining backing value

The Current Money System

A Reformed Money System

     Essential Requirements for

    The Benefits of


Introduction

In order to have a healthy economy we desperately need to reform our Money System. Why? Because it is through money that our economy functions and any flaws in how the money system operates will negatively effect the health of the economy and of us as individuals.

The money system is responsible for:

a) issuing new money and maintaining the amount of money in circulation

b) money only representing value, no information is  contained within money about what is valued.

It is with regard to a) & b) above that flaws are to be found in the current money system.

Why money?

We have to start with this question, why do we need money in the first place?

It is because money is an unsurpassed support for our economic activities.

A healthy economy is comprised of an accummulation of healthy economic events and healthy economic events are comprised of satisfactorily completed voluntary exchanges of goods and/or services.

Now completed exchanges can be split into two types of exchange, simple exchanges and complex exchanges.

A simple exchange involves two parties who voluntarily make a ‘quid pro quo’ exchange of two items, the items being either a good or a service. The two items are obviously of at least equal value in the eyes of the two parties otherwise the exchange would simply not have happened. A completed simple exchange is thus a healthy economic event.

The trouble is simple exchanges are logistically very difficult to organise. This is because of the number of coincident conditions that are a prequisite for the exchange to happen. These conditions are: Both parties have to have, at the same moment in time, an item that they are willing to exchange and both parties must be happy to accept the other party’s item in exchange for their own item.

The invention of money removed these organisational difficulties. Money, being a socially accepted record of value, enables the above compulsory conjunction of coincident events to be delinked in  time and place. By being an independent record of value money opens the way for one of the parties to the exchange to be replaced by two or more different parties. This enables the remaining party to purchase an item that they want from somebody and then subsequently sell, for the same price, their own item to somebody else who wants it. This sale completes the exchange economically and in this way, what would have been a simple exchange if it could have been organised, has, through the use of money, enabled a collection of transactions to become a complex exchange.

Not surprisingly, by enabling simple exchanges to become complex exchanges, money has resulted in the demise of simple exchanges. This has however opened the way for the emergence of a different kind of flaw or problem, this time, not so much with exchanges er se, but with money itself.

The first flaw and its solution

First because all the participants  in  a complex exchange do not have sight of one and other, or of all the items involved in the completed exchange, the health of complex exchanges is not a given. To remedy this lack of information, for the participants in a complex exchange, the participants need to be informed of the sources of the backing value of the money used in a complex exchange. To this end the money system should record identities of the successive holders of any Unit of Currency[UoC] and be able to make these identities known to anybody upon request.

The second flaw

The second flaw is not as conceptually simple as the first one however as it is the result of the money system ignoring the conceptual  differences between the face value and the backing value of a UoC. When  the conceptual differences are ignored by the money system it allows for fraudulent behaviours becaus they are hidden from public view.

What is the face value of a UoC? It is the amount recorded on the UoC as it is produced.

What is the backing value of a UoC? It is the value the UoC earns through its participation in its first completed complex exchange.

The trouble is  the face value  is identical to the backing value and  the backing value, if it exists, is not physically discernable. This invisibility of the backing value opens the way for committing fraud.

When we operated with commodity based currencies recognising this distinction was not necessary because,  right from its point of issue into circulation, a newly issued IoC had a backing value, it was in a specific fraction of the State’s commodity holding. This is not the case with fiat currencies however and we have been using fiat currencies since the 1970‘s.

A fiat currency is money in its purest form. It is just a socially accepted record of value, that is all, and consequently the first issue that has to be resolved for any UoC is this, ‘The UoC represents the value of what?’

Exactly how this question is answered gives a UoC its backing value.

Because money deals with successfully exchanged goods or services a newly issued UoC has to get its backing value from such items. Ideally this happens as the result of, a well orchestrated, completedcomplex exchange of goods and/or services. The completion of a complex exchanges is not visible to the participants in the exchange however so this has to be ensured by the money system. The money system needs to do so by only issuing new UoCs, as non-interest paying debt, at the piont of making a purchase of goods and/or services. Once the new money debt has been subsequently settled  it is then clear that the complex exchange is completed and then the new money has naturallygained its backing value.

Unfortunately this is where things can go wrong because newly issued money can come by its backing value in one of two ways,  a problematic way because it is sometimes dishonest, or an always honest way. The operation of the money system determines in which of these two possible ways newly issued currency gains its backing value. But first before considering these possible ways we need to consider how money works.

Why money works

Money relies on public trust. Money only works as a record of value because the public trusts that it has the backing value for its face value. This trust applies whether the money is newly issued into circulation or not. What this means for newly issued money is that whether it has, or does does not have, the value of actual goods and/or services behind it to back  it up, the public will treat it as though it has such a backing value.

The Problematic Way of gaining backing value

Wnen the economy is growing faster than the rate at which new money is being produced then, by default as the complex exchanges which can serve as backing value for the new money have already been completed its  backing value is honestly gained but only at the community level as the individuals who created it are unknown therefore this backing value actually belongs to the community by default.

Otherwise the new money actually has no honest backing value and the backing value has to be gained dishonestly  by default through an operational allocation of backing value by an enforced  sharing of the backing value of the money already in circulation. This is plainly and simply wrong as it is the theft of backing value from the backing value of the money already in circulation. The theft it is euphemistically hidden from public view by calling it inflation.

The Honest Way of gaining backing value

The honest way of providing the backing value requires the money system to ensure that new money is only issued to any individual who  has insufficient money to complete a purchase and that this is  done  at the point of purchase. The new money would be issued to the individual as, non-interest paying debt, but only if the individual had not yet reached their money system controlled new money debt limit. Any money that the person earns subsequent to the issuing of the new money would have first be used by the money system  to settle any outstanding new money debt, with the remainder, if any, of the money being passed through to the person’s bank account. Once the new money debt is settled the new money in circulation has gained an honest backing value.

The Current Money System

The current money system operates in the problematic way.

Firstly new money is issued by banks as interest paying debt, either long term, e.g. housing loans, or short term, e.g. credit cards.  As a fiat currency has no backing value on issue the banks charging interest on it is a fraudulent practice benefitting the banks rather than the community.

However short term loans escape being fraudulent at the individual level during the first month of debt, because courtesy of the banks, they are usually interest  free. If the card holder misses the settlement due date however then the fraud is activated because then interest is charged.

The interest charged on long term loans is fraudulent from day one and in addition such loans debase the currency until they are paid off. The only exception occurs at the community level if, by good luck, the economy is growing faster than new money is being issued into circulation then no currency debasement will occur but the banks as institutions are still gaining at the community’s expense having appropriate the backing value of the new money to themselves when it actually belongs to an indefinable other and by default therefore belongs to the community.

A Reformed Money System

Essential Requirements for

The details of such a reformed money system would need to be worked out and agreed by all stake holders but they will need to include the following:

1. A switch to a completely digital currency

2. Acceptance of government resonsibility to ensure that every person has the use of a cell phone to serve as their electronic wallet

3. The establishment of a completely apolitical Central Currency Authority[CCA] to manage

a) money

b) the money system

c) users of money

4. The issuing and management of all new money to be the sole responsibility of the CCA

5. The exclusion of any and all financial institutions from issuing and handling new money

6. The keeping, with each Unit of Currency[UoC], of a  history of the identities of its holders  

7. The acceptance that all cash transactions, deposits or disbursements, will begin their lives through the systems of the CCA.

Benefits of

 

All sorts of immediate and possible future benefits will flow from the implementation of the above seven things

1. The end of money system induced

a) poverty

b) inflation

2. Removal of the costs associated with the handling and securing of physical money. Digital money will of  course have its own security requirements, which because monetary transactions are already digitised, are already catered for in many ways.

3. The possibility of eliminating all crimes founded on the conversion of stolen or illegal items into money as money will no longer be anonymous

4. The posssibility of replacing the present tax collection system with a minimal levy applied to all cash transactions as these transactions will all have to pass through the CCA’s systems. This will vastly reduce the costs currently associated with tax collection.

5. The massive simplification of the logistics of disbursing any public money to citizens.

 

 Rory Short 2017-04-15

NATURAL MONEY

INTRODUCTION

Money is a human creation and as a consequence over time has been produced in different forms regulated according to the current theoretical understanding of money and it is with the theoretical understanding of money that any discussion of money has to begin.

Why was money created in the first place?

WHY NATURAL MONEY?

On our own we are unable to supply everything that we need for our nourishment and  survival so we have an ever present need for the voluntary exchange of goods and services with others. The following is an example of a completed simple exchange.

The initiator [A] of a simple exchange has to locate a person [B] who wants item Ia that A is offering, whilst themselves offering item Ib, something that A is willing to accept as a fair exchange for Ia because the value given by A to Ia and Ib is the same and the same must be true for B otherwise the exchange would not be completed.

A completed simple exchange, as above, is a wholly natural event in a human life and is thus undeniably healthy. Now because we are thinking in economic terms we term these wholly natural events, economic events. Any economy is comprised of an aggregation of economic events terefore a healthy economy is created  from healthy economic events.

Such completed simple exchanges are difficult to arrange however because their completion has to meet the coincident requirements for goods and/or services of two different individuals. Thus an economy comprised of only, completed simple exchanges, would be very small.

A’s difficulty, of arranging an exchange with B, who is only one individual, could be reduced however if the coincident receiving and supplying requirements placed on B were split from one and other. Then B would continue to supply item Ib to A whilst another different individual C would receive item Ia from A.

But how is this split to be implemented without jeopardising the economic health of the completed exchange?

In order to maintain the economic health of a more complex exchange it is in fact only necessary to ensure that the values, accorded by, the individuals involved, to the items Ib and Ia, are the same, i.e. the value of Ia must equal the value of Ib.

How is  this to be done?

It can easily be done if A takes the following six steps:

1. Agreeing the value of Ib with B, say vIb

2. Creating two recordings of vIb, vIb-r and vIb-ex, where

a) vIb-r is A’s own debt = vIb
b) vIb-ex is an exchangeable form of vIb

3. Giving vIb-ex to B in exchange for receiving Ib from B

4. Agreeing the value  of Ia with C, say vIa, vIa  = vIb otherwise the exchange cannot be healthy

5. Giving Ia to C in exchange for vIa-ex received from C

6. Settling A’s own debt, vIb-r, with the amount VIa-ex received from C .

This procedure completes the more complex process of exchange and ensures that the resulting economic event is economically healthy which in turn means that vIb-ex has the backing value of a healthy economic event .

It is obvious that the economic health of the exchange was maintained through the consistent equality of the prices, vIb and vIa, and, vIb, after the completion of the process, can unquestionably be regarded as representing the value of item Ia thus validating vIb-ex’s  value. This validation has occurred quite naturally as a result of the completion of the exchange process so that is why vIb-ex can quite comfortably be classed as natural money, i.e. NM.

CONVENTIONAL MONEY Vs NATURAL MONEY

To clarify our thinking about money we first need to realise that any currency is just a representation of the value inhering in something else, a good or a service. Thus the units of a currency[UoC], i.e. money, have two values, a face, or ostensible, value and a backing, or real, value. The face value is the value of  good or service that the UoC purports to represent. The backing value is the value of the actual good or service that the face value is ‘purported’ to be representing because there may or may not be an actual good or service for the UoC to represent the value of.

As is clear from the above description of the procedure which gives rise to NM the backing value of NM is always real. The same cannot be said for our current conventional currency because it is a fiat currency whose backing value exists only by government decree which may or may not reflect economic reality.

Fiat currency is money that is guaranteed by the State to be exchangeable for goods or services to the value of its face value. Unfortunately there is no concomitant guarantee by the State that it will produce these goods or services when the money is presented. For this the State is totally reliant on unspecified others. Consequently the State guarantees enshrined in a fiat currency are flimsy or at best uncertain. Also there is no natural curb on  the State to prevent it from producing, either deliberately or by accident more fiat money than the amount of goods and services actually available in the economy warrants. This results in the exchangeable value of money falling below its face value. This is currency debasement, also known as inflation.

The honesty of our current fiat money’s representation of the values of actual goods and services is not, and cannot, be guaranteed, whereas it can be guaranteed for NM because the money system naturally ensures it.

Previously, when our currency adhered to the gold standard,  this was not the case. Then all UoCs were by law compelled to represent the value of a specific fraction of the State’s gold holding. Thus from the point of first use they already had a real backing value.  NM UoCs on the other hand get their backing value once they have participated in their first completed complex exchange.

Two major problems arise from the use of our current fiat currency.

The first arises from the days of our adherence to the gold standard. This problem should no longer exist as we now operate on a fiat currency which does not adhere to the gold standard. The problem is the fact that the current fiat money system cannot issue new money to anybody who needs it to make a purchase. This was correct and necessary when we adhered to the gold standard, money from issuance had a backing value, but with a fiat currency this is no longer the case and new UoCs could be issued free to anybody who needs them to enter into the purchase half of a full complex exchange. There need only be two provisos attached to this issuance. One that the new money is issued as non-interest paying debt to its recipient, and two that a limit is placed on the amount of unsettled new money debt that any person can carry at any point in time. This latter proviso is to prevent any free-loading on the community.

Currently banks issue Credit Cards to their customers for this purpose but unbanked or poverty stricken persons have no access to credit cards.

The second problem is constant inflation caused by the money supply exceeding the volume of the goods and services in the economy. Because this money system induced inflation is theft it is only advantageous to those who profit from it. It is enormously disadvantageous to everybody else by constantly eroding their financial wealth. This problem arises because the production of new money is not inextricably bound to the actual exchanges of goods and services as it would be under NM.

Thus a switch to NM would enable the eradication of both of these problems.

SWITCHING FROM CONVENTIONAL MONEY TO NM

A) As money is an exchange facilitator that benefits the economic lives of every individual and thus the community as a whole the system which administers money should be provided as a completely a-political community service by the State. This should be done at the tax-payer’s expense not that of the individual. A name for this system would reflect its purpose, the Money Administration Service [MAS] is suggested.

B) With NM the amount of money in circulation will quite naturally always meet the needs of  economically active citizens so the MAS can be completely divorced from everything political in order to carry out its single task of administering money.

C) For any individual to be able trigger off the issuance of new money at the point of purchase the following functionalities will have to be available through MAS:

a) a register of all economically active entities[EAE]
b) for each EAE MAS will keep a record of their new money debt as well as their allowed maximum new money debt
c)   access to a single bank account for every EAE, used by them for all their monetary transactions
d) all monetary transactions will have to be digital so that

i) new money can be issued by MAS anywhere provided that the point of issue is             accessible via the cell phone network

ii) each EAE’s new money debt can be controlled by MAS

iii) clearly a switch to a completely digitally based currency is the logical thing to do

e) MAS will keep the only register of UoCs called UoC_REG
f) there will be no fractional UoCs so a UoC will be designed to represent the value of the smallest viable economic entity be it a good or a service
g) each UoC will have a unique identity making UoC_REG the digital equivalent of the gold holding of a gold standard based currency
h) each UoC will carry the unique  identity of who currently holds it
i) only copies of single, or defined collections of, UoCs will appear in circulation, and as single copies only
j) as new money debt is settled the settling UoCs will be deleted from UoC_REG
k) every EAE will have to have a cellphone capable of interacting with MAS, in other words a cell phone will be an EAE’s electronic wallet
l) all monetary transactions by an EAE, receipts or deposits, will have to be initiated through MAS
m) for a deposit MAS will check to see if the EAE has any new money debt to be settled before the remainder, if any, is placed in the EAE’s bank account
n) for withdrawals MAS will:

1. check to see if the intended payee is registered with MAS

2. If not it will tell the EAE and refuse the withdrawal
3. If yes it will check to see if there are sufficient funds in the EAE’s bank account

4. If yes it will extract the withdrawal from the EAE’s bank account and pass it through
MAS to the payee
5. If not it will check to see if the EAE’s new money limit has been reached

6. if yes it will go back to step 2
7.  if not it will check to see if sufficient new money could be added to the EAE’s new money debt to allow the withdrawal

8. If yes it will add the new money to the EAE’s new money debt,  put it in the EAE’s bank account and go to step 4
9. If not it will go to step 2

Switching to NM as outlined above has many additional potential benefits for society.

a) the Reserve Bank will no longer be required to police new money issuance

b) the Reserve bank will be able to devote itself solely to supervising institutions which deal with old money

c) the commercial banks can return to their proper role which is to serve as brokers between savers and borrowers of old money

d) the costs associated with physical money will disappear, i.e. its production, its  distribution and the associated security and insurance costs

e) because the identity of the holder of any UoC will be kept on UoC_REG criminal activities that involve money will be easily traceable and therefore pointless

f) at long last money can have a moral colour. If say the last 5  identities of the holders of a UoC were kept on UoC_REG then anybody who was about to receive the UoC in payment could view its holder history and reject it if they did not approve of the activities of any of the previous holders.

THE WAY TO END MONEY POVERTY FOREVER

0. INTRODUCTION

0.0. GENERAL

0.1. CREDIT CARDS

1. WHAT IS NATURAL MONEY

1.0. NATURAL MONEY CATEGORIES

1.1. NATURAL MONEY DEFINITION

1.2. CONTRACTUAL ROLES OF MONEY

2. HOW IS  NATURAL MONEY CREATED

2.0. INTRODUCTION

2.1. NEW MONEY,  MONEY POVERTY AND CREDIT CARDS

3. HOW DOES NATURAL MONEY BECOMING OLD

4. CHANGING OUR MONEY SYSTEM

4.0. OUR CURRENT MONEY SYSTEM PROBLEM

4.1. THE THREE POSSIBLE CURRENCIES

4.2. ELIMINATING MONEY POVERTY

______________________________________________________________________

0. INTRODUCTION

0.0. GENERAL

There are many different kinds of poverty, poverty of spirit, poverty of material possessions, poverty of thought, poverty of skills, poverty of education, poverty of money. This last is also sometimes known as a ‘shortage of money’. In this SIG I want  to show how this last kind of poverty, poverty of money arises from our money system and can thus be eliminated by changing the system.

But first, based on my previous experience of YM SIGs on money, I would ask you to please shed any notions about money that you might have, what it  is or isn’t, so that I can present these thoughts on money poverty to you unimpeded by any of your previous ideas about money.Then please raise any issues you might have with what I have said after I’ve finished.

0.1. CREDIT CARDS

I’d like to start with credit cards.

Credit cards are often derogatorily referred to, half in jest, as ‘plastic money’. The implication being that because the card is plastic we are not dealing with real money.
Well what is said in jest is actually true. Credit, even though we can spend it as if it were real money, is not real money in that it has no backing value, just the promise of backing value some time in the future.

Those of us who have bank accounts probably have automatic access to a credit card facility. Those who do not have bank accounts do not have such access.

Those with credit cards are expected to pay off their credit card debt every month and without doubt their access to a credit card facility exists because they have a bank account. The lack of a bank account is why other people are not allowed to have access to a credit card. But is being without a bank account sufficient reason to prevent people from having access to  the convenience of a credit card?

The answer to this question is, no it isn’t, but we need  to understand the basics of money first before we will be able to see why this is so.

Let us explore the natural essence of money, untarnished by any  conceptual additions that might have later been added to it.

1. What is natural money
2. How is natural money created
3. How is natural money destroyed

I have chosen to use the adjective ‘natural’ here because there is a natural basis to, what we know as money, and on which, ideally, what we know as money should be directly and unambiguously based.
.
Armed with this understanding we will then be able to see how, by a simple logical change, to the system that administers our money, money poverty can be permanently eliminated.

1. WHAT IS NATURAL MONEY

1.0. NATURAL MONEY CATEGORIES

Before trying to answer the question ‘What is natural money’ we need first to recognise that there are two logically distinct, but not physically distinct, categories of natural money, old and new. A money system that does not recognise this distinction cannot handle natural money correctly.

The two categories arise from  the fact that the units of any currency, i.e. money, carry two values. A visible face value, what it says it is worth, and a hidden backing value, the value of, the real good or service, that it is representing. The two values, when the money system functions correctly, will be equal.

The ‘face value’ is always present on any unit of currency of course but the ‘backing value’ may not be. Units of newly issued natural money, i.e. new money, only gain this value after the money has participated in its first completed exchange. Only then can it correctly enter the category of ‘old money’.

1.1. NATURAL MONEY DEFINITION

Natural money is a ‘socially accredited’ record of the ‘value of something real, be it a good or a service.

Natural money is just information about the value of something real, nothing more nothing less. It is quite simply a human creation based on the reality of the judgment of value by humans.

There are two phrases in this definition of natural money which are, for us, operationally  significant,  ‘socially accredited’ and ‘value of something real’. This significance arises from the fact that money plays an important role in an untold number of our social interactions. It is therefore essential for the sake of honesty in social interactions that money should be based on reality.

‘Socially accredited’ means that the ‘value of something real’  is agreed upon by two or more people. This is important because the value exists only in people’s heads until, that is, it is externalised in some or other way like money for instance.

Now because natural money is ‘value information’ about something that is real a natural money system has to ensure that the ‘something real’ actually exists. Otherwise the system is defective and there will be no guarantee of a backing value for the face value of the money thus causing social and economic ill-health.

It is only through ensuring this real value basis of money that it can play its three distinct contractual roles within society in an honest way.

1.2. CONTRACTUAL ROLES OF MONEY

These contractual roles are:

Role 1
Here money is a commitment by the first, or initial, holder and user of the money to supply a good or a service into the community, equal in value to the face value of the money. This commitment is what promises a future backing value for the money.

Role 2
Here money is a commitment by the community to supply, to the holder of the money, a good or service  equal in value to the face value of the money.

Role 3
Here relying on, the commitment in role 2, money is accepted as payment for a good or service supplied.

2. HOW IS NATURAL MONEY CREATED

2.0. INTRODUCTION

A healthy economy, which is something that we all want, is created from voluntarily completed binary, or simple, exchanges of goods and/or services, nothing more and nothing less. Such completed exchanges are the events that create an economy and one which is also economically healthy.  In other words a healthy economy is constructed from healthy economic events and economic events are healthy when both parties to an exchange are fully satisfied with the completed exchange.

Do such simple, one to one, exchanges exist in ordinary life?

Let us examine an example of what happens in ordinary life.

An artist skilled in producing people’s portraits does so for a living working in shopping malls. The artist wants to try out mall B as a market place for the skills he or she has to offer. B is a long distance from home however and it will take too much time to walk there. A bus or a taxi will have to be used to get there. The nearest bus stop is also a fair walk from home. A taxi service will come right to the door however so a taxi it has to be. There are two choices a metered taxi or an Uber taxi. Both services are reliable but the Uber service is cheaper and booking and payment via a cell phone is easy. Uber is chosen. Mall B proves to be a lucrative market place and so the Uber taxi service can be called upon to get home again at the end of the working day.

Clearly there is no simple one gto one exchange of goods and/or services in the above example. The artist is in effect transacting, via money, with two or more different members of a community, receiving a service for money from one or more Uber drivers and giving a service for money to people wanting portraits of themselves.

What the example shows however is that if more than one other person can be included in the exchange process then the difficulty of organising a ’one to one’ exchange is removed.

Now from an economic health point of view the ‘one to one’ exchange events are like  atoms and if they are split up and, remain split up, they can easily cease to be the naturally healthy economic events that, as of nature, create a healthy economy. The trouble is that,  from an ease of exchange point of view, we need exchange process that involve more than one other person. Is there a way out of this dilemma?

Yes, there is, it involves money.

We saw how money filled this exchange facilitation role in our  example above. But can money also be used to  ensure the economic health of the exchange?

Yes it can.

Money does this by dealing, from the exchange initiator’s perspective, only with the values of the items exchanged, not the items themselves. If the values exchanged by the initiator of the process are the same, that is the receiving and the giving values, then this, more complex exchange, is as economically satisfactorily completed as if it had just been a simple, one to one, exchange.

So the problem of, maintaining economic health, presented by having more than one person involved in an exchange process is solved by the use of money.

Now money is a human creation so when should it logically be created?

Surely as part of a complex exchange process when new money will naturally emerge as old money from a completed complex exchange.

Basically if the initiator of an exchange is short of enough money to enter into the exchange then the money system should issue enough new money, as new money debt, to cover the short fall. That is what happens with credit cards.

2.1. CREDIT CARDS, NEW MONEY AND MONEY POVERTY

A credit card is nothing but an authorisation to produce new money in order to make purchases.

The user of the credit card, in accepting the debt of the new money, is accepting the contractual commitment, in Role 1, to supply, into the community, goods and/or services to the value of the money. This commitment, in Role 1, is  discharged naturally when the new money debt is settled at the end of the month. This is the case because the money used to settle the debt indicates that the necessary goods or services have been suppled into the community by the credit card user.

Anybody who can supply goods and/or services into the community for a fee can settled new money debt. Therefore there is absolutely no economic reason why people without bank accounts should be excluded from triggering the issuing of new money, as new money debt, when they wish to make purchases. In fact there is every economic reason for enabling it.

One, because it would automatically enable everyone’s participation in the cash economy.

Two, because it would grant complete economic freedom to everyone, i.e. the ability to trigger the production of new money when needed.

There are only two provisos needed to make this work:

a) that the new money debt is settle as soon as possible

b) to prevent run away inflation there would have to be a limit on the amount of new money debt that any individual could be carrying at any point in time.

3. HOW DOES NEW NATURAL MONEY BECOME OLD

When new money is put into circulation through the purchase of goods and/or services a  new money debt is created. The new money is becomes old when the new money debt is settled because this shows that the exchange in which it was involved has been completed.

4. CHANGING OUR MONEY SYSTEM

4.0. OUR CURRENT MONEY SYSTEM’S PROBLEM

Until sometime in the 1970‘s our Rand was based on gold, a commodity. Then in the 1970‘s the government of the day legally removed the Rand’s gold backing and it automatically became a currency backed only by government legislation, a fiat currency. With the change the money system should have been changed to handle a natural currency and it wasn’t. So our current money system is designed to manage a commodity based currency and we no longer have one. So we now have a fiat currency that is based purely on legislation and not based on day to day economic reality.

4.1. THE THREE POSSIBLE CURRENCIES

There are basically three kinds of currencies, or money systems, commodity based currencies, fiat currencies and natural currencies.

Not that there is any perceptible difference between them in every day appearance or usage. It is in the manner in which their backing value is established that they differ.

Units of a commodity based currency are legally compelled to represent the value of a unique fraction of a State’s commodity holding. The holding exists in order to give the currency, from its first issuance, a real backing value.

Units of a fiat currency are legal tender for making payments where a payment is the transfer of an item of value from one party to another.

Notice the following about the above definition, it assumes, without any legal or other proof, that the currency has a backing value that equates with its face value. The statement refers only to ‘value’, there is no mention made of ‘backing value’. The statement must therefore be assuming that the currency used has a backing value that accords with the face value. There is however no legal or other compulsory reason for this assumption to be true.

The consequence of this missing requirement is that there is a constant battle, by the Reserve bank, to curb the inflation caused by the production of too much new fiat money. The main culprits in this regard are the banks. They grant long term housing loans in the form of  new fiat money debt and because these debts are only settled over the long term, twenty or thirty years, they inevitably cause inflation.

However the statement is true if either one of the following conditions holds

a) the currency is commodity based, or

b)  it is a natural currency.

Thus the fiat imprimatur, if it is to be honestly given, should only be given to a natural currency.

A natural currency is one where the face value is unquestionably the same as the backing value because its money system maintains this condition.

4.2. ELIMINATING MONEY POVERTY

Now we are ready to  consider how to change our fiat currency to a natural currency. This switch will mark the end of money poverty.

There will be a lot of work, by many stake holders, involved in making the switch but well worth the doing of it.

1. Firstly we will need to switch to a wholly electronic, or digital, currency, giving up all physical notes and coins.

As the majority of our money transactions are already electronic, and becoming more so by the day, this is quite feasible to do certainly for the already banked, for the unbanked and implementing a natural money system  it is essential.

Giving up all physical notes and coins would save the costs associated with the handling and securing of physical cash.

The details of this switch would have to be worked out by all stake holders.

2. With a wholly electronic currency every person who needs access to money will have to possess a working smart phone which will serve as their electronic wallet.

The State will have to subsidise smart phones for the poor.

A significant opportunity would exist in this for smart phone manufacturers.

3. The State will need to establish a Central Currency Authority [CCA] that will be responsible for:

1. Keeping an up to the minute register of the identities of all economically active persons[EAP] in the country.

2. Acting as the sole issuer of new money to EAPs

3. Maintaining a new money account[NMA] for each EAP

4. Recording one bank account per EAP

5. Serving as the first port of call for all monetary transactions by EAPs whether withdrawals or deposits.

6. For EAP deposits checking their NMA to see whether there is any new money debt to be settled.

If not passing the deposit through to the EAP’s bank account.

If yes settling what can be settled of the debt and passing the remainder, if any, through to to the EAP’s bank account.

7. For EAP withdrawals checking in the EAP’s bank account to see if the withdrawal can be met.

If yes passing the withdrawal through to the EAP’s bank account.

If no checking the EAP’s NMA to see if the shortfall could be met by issuing new money without exceeding the new money limit.

If yes passing the new money through to the EAP’s bank account and adding the new money amount to the EAP’s NMA.

If no notifying the EAP of the situation.

8. As the currency will exist  in electronic form only it can consist of units only, no fractions or multiples, the units being chosen to represent the smallest practical value.
9. A UOC will carry a unique identity.

10. The CCA will keep the originals of all units of currency[UOC] in a database. The originals will be deleted as and when the EAP’s new money debt is settled.

11. Original UOCs will never enter circulation only certified single copies of them.
The copies can consist of single UOCs or, for circulatory convenience, uniquely identified multiple UOCs. If there is a need to divide a uniquely identified multiple into smaller multiples then it is destroyed and replaced by the smaller uniquely identified multiples.

12. UOCs that are circulating in uniquely identified multiples will each carry the identity of the multiple.

13. The copies in circulation will besides carrying the identities of their component UOCs will carry additional holder information. This in order to give them a moral colour. It will be the identity of its very first EAP and the identities of its most recent (?10?) EAP holders.

4. As there will have to be many stake holders involved in this exercise it would have be a carefully planned national project with measurable objectives with regular public progress reporting arising from independent monitoring.

5. Banking functions should be restricted to dealing with old money only. Banking operations should not be allowed to deal with new money.

6. There will be many benefits associated with such reforms to the money system. To list some major ones:

– no person who is capable of being economically active need ever again be short of money to make a purchase, unless they have exceeded their new money limit

– inflation, induced by the way the current money system operates, will stop

– there will be no costs of securing and handling physical money

– people, after looking at the originator and recent holder history of any unit of currency, will be able to refuse to accept it as payment if they so wish.