Skip to content

MONEY,‭ ‬NATURAL AND ARTIFICIAL

December 2, 2017

For aeon’s we have had, and thus have become thoroughly accustomed to, artificial money and its associated problems. Consequently we, not surprisingly, think that the problems with money itself are inherent in money. They are not and will disappear if we change our Money System [MS] so that it only produces Natural Money.

Artificial money is money that is produced independent of any exchange and until the advent of mobile phones, Information Technology and the Internet we generally had very little choice, when new money was required, but to produce it artificially. But for us today, with the afore mentioned technology plus the fact that the Rand has been a Fiat currency since the 70‘s, this is no longer the case. What this means is that the Rand money System is already part way to producing Natural Money, all that is required is to make some necessary adjustments to it.

What is Money‭?

The beauty and power of money lies in the fact that it can be exchanged for absolutely anything of equivalent value. In other words units of a legitimate currency are universally exchangeable for goods and services.

But how does money come by this miraculous property?

The answer to this question is central to any deeper understanding of money. There is however an even more fundamental question that needs to be answered before we can answer the first question. This is, what is an economy? Why this question you might ask? It is because money’s miraculous ability is totally bound up with its role in the economy.

What is this role?

In order to survive, let alone flourish human beings have a vital need to make voluntary exchanges of goods and services with others. Now each of these exchanges is a complete and free standing economic event and the accumulation of these events is what makes up an economy. Basically if there are no exchanges then there is no economy. Thus if we are to fully understand what money is we need to first understand what money’s role in exchanges is.

Before money was invented we made exchanges without the use of any money.

Voluntary exchanges without money

Voluntary exchanges can and do take place without the involvement of any money.

For convenience we call such one to one exchanges Moneyless Simple Exchanges. ‭These exchanges are logistically very difficult to arrange 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 these one to one exchanges 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.

‎From the above we can see that Natural Money is just a name for the externalisation of what is in the heads of the exchanging parties, namely, the values of the exchanged items.

Moneyless Simple Exchanges might be difficult to arrange but they contain all the elements needed for the creation of a healthy economic event. These are

a) one to one
b) automatically healthy both
(i) economically, i.e. fair value, and
(ii) socially, each party, plus offering, is accepted by the other,
otherwise the exchange would not complete
c) when completed they form, one, integrated, healthy, economic unit, or event.

‎Voluntary exchanges involving money

‎Money is introduced into voluntary exchanges because it hugely facilitates the exchange process whilst not damaging the economic health of the resulting event. Unfortunately, under the present money system, the same cannot be said of the social health of the event, its social health becomes less certain.

‎Now exchanges involving money are of two kinds, complex and simple. Complex exchanges involve the use of newly issued money and Simple exchanges involve the use of old money. Old money is just newly issued money that has successfully emerged from a completed complex exchange.

‎Complex exchanges

‎Newly issued money, V, enables one of the two parties in a Moneyless Simple Exchange to initiate the complex exchange whilst the other party is replaced by two people, a seller person and a buyer person. The initiator anchors the exchange by receiving V as interest free debt from the Money System. They then use V to purchase something of value V from the seller person. They subsequently sell something of value V to the buyer person. The income from the sale enables them to settle their interest free debt V thus completing the exchange and filling it with its natural value.

‎Thus natural money is quite simply the externalised, shared, or equal in value, in quantitative terms, of the items exchanged in a completed complex exchange.

‎The completion of the complex exchange indisputably establishes

‎a) a healthy economic event
b) ‭the backing value of the newly issued money involved, V.

‎This makes it possible for V to serve as a legitimate stand-in for the exchangeable item(s) in one half of any Moneyless Simple Exchange. Thus turning V into old money.

It should be noted however that these monied economic events are not automatically socially healthy because ‭all the people involved in them do not have sight of one and other, nor of all the items involved in all the exchanges.

‎Simple exchanges, using money

‎Simple exchanges using money, old or new, have become the normal method of exchange in cash based societies like ours. This is because of the universal exchangeability of money. As a consequence Moneyless Simple Exchanges have virtually ceased to exist.
‎To distinguish Simple Exchanges involving money from Moneyless Simple Exchanges these exchanges are referred to as purchases, or sales, depending on their initiator’s role in the exchange.

‎However it must be noted that

‎a) until the first complex exchange, in which newly issued money participates is successfully completed, it is fraudulent because it has as yet not gained its legitimate backing value
b‭)‬ ‭currently these economic events are not automatically socially healthy because all the people involved in them do not have sight of one and other nor, of all the items involved in them.

‎The Pros and Cons of using artificial money

‎Currently we use artificial money in exchanges but its use is not without negatives and positives. The pros and cons are as follows:

‎Pros

‎a) it completely eliminates the logistical difficulties associated with arranging Moneyless Simple Exchanges.
‎b) all ‘in process exchanges’ are made visible and quantifiable through the money being used.

‎Cons

‎The Cons depend on the type of artificial money being used.

‎a) where old money, Fiat or commodity based, is being used exchanges are

‎i) not automatically socially healthy

‎b) where new commodity based currency is being used exchanges are

‎i) not automatically socially healthy

‎ii) not open to those who have no money

‎Money poverty means that a person cannot automatically participate in a cash based economy and thus experiences real poverty in terms of access to goods and services.

‎c) where new Fiat money is being used exchanges are

‎i) not automatically socially healthy
‎ii) not economically healthy, until the new money gains its legitimate backing value
‎iii) not open to those who have no money
‎iv) depending on the Money System administering it, the money is susceptible to chronic debasement, i.e. inflation.

‎Inflation means continuous theft of value from all the money already in circulation. The SA Reserve Bank has a target range, not of 0% but of 3 to 6 percent for inflation, consequently money’s users are confronted on a daily basis with the ever decreasing purchasing power of artificial money.

‎In view of the above cons the obvious next question is, can the pros be preserved whilst eliminating the cons? Yes they can by completing the transition to a money System that produces only natural Money. Historically we were only able to manufacture money artificially, i.e. apart from actual exchanges, and we have basically continued with this approach until the present day. Because of modern technology the manufacturing process for a Unit of Currency[UoC] can be altered so as to produce only Natural Money and this will eliminate the four cons listed above.

‎Let us now consider a Money Sytem for Natural Money.

‎A Money System for Natural Money

‎The three major components of a Money System that is designed to only produce Natural Money are

‎a) the manufacture and issuance into circulation of new Units of Currency[UoCs],
‎b) the continuous recording of who holds the UoCs whilst in circulation, and
‎c) the UoCs ultimate removal from circulation.

‎a) the manufacture and issuance of UoCs

‎A UoC is like a container to be filled with a specific value. So the process consists of two steps

Step one is the creation of the container,‭ ‬i.e.‭ ‬a UoC,‭ ‬with a specific face value.

‎Step two is the filling of the container with the value specified by the face value.
‎This value is known as the backing value which distinguishes it from the face value.

‎Step two is not instantaneous for natural money. It happens as a result of the completion of the first complex exchange in which the UoC participates.

‎b) the recording of who holds the UoCs whilst in circulation

‎The purpose of recording who holds UoCs, whilst in circulation, is to enable monied exchanges to be healthy. During their time in circulation UoCs will be held by many different people as well as being involved in the exchange of many different items. The varietyof items involved in exchanges is limitless whereas the variety of participants involved in exchanges is more limited and, the items exchanged are anyway linked to the participants, so attaching a history of the identities of the successive holders of a UoC is sufficient information for health of the exchanges purposes.

‎c) the UoCs ultimate removal from circulation

‎Removal from circulation of, UoCs earned by people who are still indebted for previously received new UoCs, is essential as it settles their newly issued UoC debts. The removal from circulation of UoCs also ensures that the backing value of the previously issued new UOCs is valid.

‎Realising a natural money system

‎Step one is triggered when a purchaser requests money from the MS, in order to make a purchase, and their bank account is short of enough money to complete the purchase. The MS then issues enough new money to complete the purchase.

‎The exact method chosen to handle this situation will have to be determined by the various stakeholders. There are three major options here. One the handling of this situation is totally vested in a Central Currency Authority[CCA], or two, it is totally vested in the banks, or three, a mix of these two options is worked out between the various stakeholders.

‎Only the first option is presented here.

‎1. Convert the Rand to a fully digital,i.e. electronic, currency.

‎a) the State will have to ensure that everybody who wants to enter into monied exchanges has

‎(i) access to a smart phone [the phone will serve as their electronic wallet]

‎(ii) is registered with the CCA

‎(iii) has a bank account.

‎Everybody means just that. The State will have to ensure this. Consequently money poverty will only ever occur for those individuals who are, for whatever reason, incapable of completing complex exchanges. Thus their new money debt will have to be settled by means of a social grant.

‎b) there are a number of reasons why this conversion will be beneficial

‎i) elimination of the problems associated with the handling of physical cash particularly keeping it out of criminal hands

‎ii) ending the anonymity of physical cash by attaching a history of holder identities to UoCs

‎iii) opportunity to gather holder identities during the circulation of a UoC and link this information directly to the UoC

‎iv) UoCs will all have the same backing value, equal to the value of the smallest practicable exchangeable item, thus any UoC will only need to consist of, a unique identity.

‎2. Issued UoCs will be stored in a central database and only appear in circulation as recorded elements in collections of UoCs that are uniquely identified.

‎4. Collections of UoCs will be equivalent to the familiar currency denominations. A collection will minimally consist of:

‎its identity, its value, a list of UoC identities [The count of these gives the collection its value], and a history of the identities of the holders of the collection.

‎5. A Central Currency Authority [CCA] will need to be established to produce and administer the currency.

‎As the CCA will be providing a purely administrative service to the public, i.e. everybody who uses money, it can and should be completely detached from politics.

‎6. The CCA is to keep:

‎(a) a register of the identities of everybody who wants to enter into exchanges involving money. The register is to consist minimally of:

‎ Owner ID #, Banking details, New money debt limit, the amount of unspent New
‎ money

‎(b) a register of all the UoCs in circulation [through the Uoc Collections].

‎The register is to consist minimally of:

‎the unique identity # of each UoC in circulation, the unique identity # of the collection within which it is circulating

‎This register is analogous to a State’s gold holdings in the days of adherence to the gold standard, because it collectively represents the value of all the ‘in process’ exchanges in the economy.

‎(c) a register of all the UoC Collections in circulation: It is to minimally consist of:

‎ the unique ID # of the collection, its value, the ID #s of all its UoCs, the ID #s of
‎ all of its successive holders.

‎The complete contents of a Collection will not be circulated just its value and its unique identity #. It will be put into circulation when it is put into the first owner’s bank account.

‎Therefore regular auditing to reconcile the values in bank accounts with values held in the UoC Collections register will be essential.

‎Step two happens when the purchaser settles his/her new money debt.

‎In order for the MS to be able to do this every deposit into or withdrawal from a person’s bank account will have to start with an appropriate request to the CCA.

‎Any deposit received must come from somebody’s bank account otherwise it is fraudulent.

‎Receiving a deposit will cause the CCA to check whether there is any new money debt to be settled.

‎If yes the CCA will first settle the debt by removing the received UoCs from crculation and then pass the remainder of the deposit, if any, through to the depositor’s bank account

‎Debt settlement naturally gives previously issued new UoCs their legitimate backing values.

‎If no then the deposit will be passed straight through to the depositor’s bank account

‎Any withdrawals must be from a person’s bank account otherwise they cannot be made.

‎1. The CCA first checks to see if there are sufficient funds in the person’s bank account to meet the withdrawal.

‎1.1. If yes it withdraws the money from the person’s bank account and

‎ i) deposits it in the recipient’s bank account
‎ii) adds the recipient’s ID the to UoC collections involved

‎!.2. If no it first checks to see whether the person has sufficient new money to meet the withdrawal

‎1.2.1. If yes it issues the new money into the person’s bank account and goes to step 1.1.

‎1.2.2. If no it reports the shortfall to the person wishing to make a withdrawal.

‎Rory Short
‎ ___________________________________________________________________________

Advertisements

From → Uncategorized

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: