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Natural Money

September 15, 2017


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.



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.


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.



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)  



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