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The Systemic Roots of Money Poverty

July 23, 2015

The Systemic Roots of Money Poverty

False Assumptions
A simple exchange
A complex exchange
Some Other Facts about an Economy
The money system


Now unlike a commodity based currency a fiat currency has no backing value at the point of issue and, we have a fiat currency. Thus it is actually not necessary for South Africans to be without the authority to trigger the creation of new money for themselves as part of their normal exchange activities. However under our current money system this is not possible.

In view of our massive problems of poverty and unemployment shouldn’t this flaw in the money system be fixed and, if yes, can it be fixed?

The essential purpose of money is to facilitate exchanges of goods and/or services so yes, this flaw in the money system should be fixed.

In essence money is nothing but the recorded, agreed upon, value of an item exchanged between two parties so there is no logical reason why any individual should not be able to trigger the production of new money, should they need it,  to enter into the first half of an exchange, i.e. into the purchase half on an exchange.

Can the money system be fixed to enable this to happen? Yes it can. It just needs the political will to take on the challenge and, it is a challenge. There are significant vested interests who are profiting from the false assumptions upon which the current money system functions.

False Assumptions


The first and foremost economically damaging false assumption is that, like a commodity based currency, a fiat currency has on first issue a backing value equal to its face value.

This is simply not true.

However those who behave as though it is true can get away with it because units of newly issued fiat currency will by default either

a) steal what they can of their, backing value, from the currency already in circulation and  thereby cause inflation, which the general populace has come to accept as an unfortunate given of the current monetary system


b) if there is insufficient currency already in circulation, for the volume of already completed exchanges, the newly issued units of currency will naturally fall into representing this currently unrepresented value and will not be inflationary.


Newly issued currency cannot be issued free to anybody except as charity.

This is true for a commodity based currency because right from its issuance it has a legally enforced backing value derived from the commodity. Therefore a commodity based currency has to be earned.

This is not true for a fiat currency which has no backing value at the point of issue. It only gets its backing value from the completion of the second half of the first exchange it participates in, i.e. when the new money’s user supplies [sells] something of equivalent value into the community and thereby settles the new money debt.

People may or may not have enough knowledge to be comfortable with the above informed reasoning so let us make sure that we know what the fundamental components, including money, of an economy are.

The foundational element of any economy is the voluntary exchange of goods and/or services. How then does money become part of such an exchange? Now exchanges can be either simple, i.e without the involvement of money, or complex, i.e. with the involvement of money.

A simple exchange

A simple exchange is one which involves the following:

Physical elements:

Two parties, A & B
Two different items, IA & IB, to be exchanged
Two simultaneous exchange processes, A gives IA to B and, B gives IB to A,
[ i.e. two simultaneous zero sum games]

Mental elements:

In A’s head are the values Vaia & Vaib with Vaia = Vaib
In B’s head are the values Vbia & Vbib with Vbia = Vbib
[For the exchange to complete it is clearly not necessary for
(Vaia = Vaib) = (Vbia = Vbib).]

A complex exchange

A complex exchange is one which involves money. When completed it must result in the same result, economically, as a completed simple exchange, i.e two zero sum games which cancel one and other out, otherwise it is economically flawed in which case the value of any new money used in it remains unbacked up by the value of an exchanged item and thus a possible source of inflation.

A complex exchange happens in two halves, these halves happen independently but with a link maintained by the constant value of the money involved.

First  Half of Exchange

Physical elements:

Two parties, A & C
One item IC, owned by C and desired by A
A set of newly issued money Mn, owned as ‘new money debt’ by A
A purchase process where A gives Mn to C in exchange for IC

Mental elements:

In A’s head the value Vaic and Vaic = Mn
In C’s head the value Vcic and Vcic = Mn

Second Half of Exchange

Physical elements:

Two parties, A & D
One item IA, owned by A and desired by D
A set of money Md, equal to Mn, and owned by D
A sale process where A receives Md from D in exchange for IA
A uses Md to settle A’s new money debt, Mn, as Md=Mn
[The backing value of Mn, now in circulation, is socially affirmed.]

Mental elements:

In A’s head the value Vaia, where Vaia = Md
In D’s head the value Vdia, where Vdia = Md

Now let us look at some other facts about economies.

Some Other Facts about an Economy

As already said at base any economy is comprised of voluntary exchanges of goods and/or services; that is all.

To prevent any confusion in the meaning of exchange as used here it must be made quite clear, that an exchange here means a voluntary swapping of ownerships of, either goods and/or services, between two independent parties. Basically each party is participating in two zero sum games simultaneously which when, completed and  taken together, cancel one and other out so each party gains.

These exchanges fall into one of three groupings as follows:

G1. Completed exchanges
G2. In process exchanges
G3. Exchanges that are still only in somebody’s mind’s eye.

Money is just a socially accepted way of representing the socially affirmed values of the goods and services in the economy. This means that honest money can only come from G1 exchanges  because these exchanges are completed and therefore the values involved in the exchanges have been unambiguously, socially, affirmed.

Money can also be seen as signifying a contract between the individual, who holds it, and the community, a contract to supply goods and/or services of value equal to the face value of the money.

The contract from the community’s point of view is  always to supply, to the holder of the money, goods and/or services to the face value of the money.

The contract from the holder of the money’s point of view depends on whether it is a fiat or a commodity based currency.

If it is a commodity based currency then the holder must have earned it therefore there is never any contractual demand placed on the holder.

If it is a fiat currency then there could be a contractual demand placed on the holder depending on the money’s usage history as follows

– no usage history, money

In this case the first user of the money is contracted to supply, into the community, goods and/or services of value equal to the money’s face value in order to give it backing value.

–  already used, i.e old money

In this case no user of it must have earned it and is therefore not contracted to supply anything into the community as they have already done so.

Changing the money system

The money system currently operates on the understanding that new money is only issued by the State. Currently the State is only responsible for issuing physical money. The State has handed over the issuing of new electronic money to the banks who are naturally only interested in dealing with people who already have money. Thus for anyone to have money they must have  got it from somebody else, preferably legitimately, not through theft or fraud. Thus the only way to get money is through someone, who already has it, by them employing you or by them buying something from you. People without money are 100% dependent on finding someone else, who already has money and has needs which they can satisfy. Currently in a money poor community this is very difficult, if not impossible, to do.

This need not be. The money system could administer a changed situation quite easily by creating a non-interest paying new money debt for the receiver of  the new money which debt would need to be settled by its owner when they received money from selling goods and/or services into the community. In other words the money system could issue new money as non-interest paying debt to anybody who wants to enter into a complex exchange and is short of the needed money to enter the first half of  the exchange, i.e. purchase. All that would then be required of them is that in due course they enter the second half of the exchange by selling something, of value equal to the debt, and thus settle their new money debt. There would of course have to be a democratically agreed cap on the amount of new money debt that any individual could hold at any point  in time in order to prevent free loading on the community and the consequent uncontrolled inflation

Such a change to the money system  would

a) offer everybody, and I mean everybody, the opportunity to enter the cash economy, under their own steam, and in a completely natural unforced way that did not require the involvement of anybody else. This involvement of everybody in the cash economy would be of immense benefit to our systemically hobbled economy.

b) ,in addition, if new money could only be issued in this way, end debasement of the currency and thus inflation induced through the flaws in the current money system.

To bring about the change there would need to be significant investments made in changing the current money system. Investments in time, resources and people but ultimately these investments would be beneficial to the whole country and its inhabitants.
We would need to switch to a wholly digital currency. This would relieve the economy of the cost burden of handling physical cash but it would also mean that government would need to ensure that every economically active person had a smart phone which could serve as their electronic wallet. It would also mean that every cash transaction, deposit or withdrawal, would have to start off in the money system run by a Central Currency Authority [CCA] . The  CCA would be responsible for issuing new money and enforcing the cap on new money debt. Thus every economically active person would need to be registered with the CCA in order to be able to transact and so that the CCA could control the amount of their new money debt. Each economically active person would also need to have a bank account to which the CCA would have transparent access as well as being able to deposit new money into it should it be required provided the new money cap was not being exceeded of course.

This simple change to the money system is logical and technically quite feasible, it has already been done, but only for the already banked, in ‘snapscan’ [


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