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The Financial Road To Serfdom


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Briefly ...

I advocate what James Robertson calls "plain" money, a unitary money supply issued debt-free by the state and with 100% reserve commercial banking. Not, as you say, to formalise credit-money, but rather to do away with it altogether.

So no commercially created credit-money, just an adequate supply of publicly issued base money in general circulation with banks acting both as custodians of their customers' deposited monies and as intermediaries and/or brokers between willing and informed lenders and borrowers of the persistently circulating money stock. All lending to be at the money owner's risk. No bailouts.

Note that the depositor remains the legal owner of money in the custody of a bank, just as when you leave your car parked at an airport.

Banks become competitive service providers - professional money handlers with no power to expand or contract the money supply.

I make the observation that many people are currently under the illusion that this is how it is now.

New money to be created in lockstep with new real wealth and spent into the economy by the state. Note that in all probability this would be but a small fraction of total state spending. No state borrowing.

So you are saying slavery is a solution for fraud?

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The problem facing bankers was how to make loans permanent national obligations.

...

...

Bankers saw parliamentary democracy as a precondition for making sound loans to governments. This security for bankers could be achieved only from electorates having at least a nominal voice in government.

So that underlies what they mean, these days, when saying they're bringing democracy to the world.

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Briefly ...

I advocate what James Robertson calls "plain" money, a unitary money supply issued debt-free by the state and with 100% reserve commercial banking. Not, as you say, to formalise credit-money, but rather to do away with it altogether.

So no commercially created credit-money, just an adequate supply of publicly issued base money in general circulation with banks acting both as custodians of their customers' deposited monies and as intermediaries and/or brokers between willing and informed lenders and borrowers of the persistently circulating money stock. All lending to be at the money owner's risk. No bailouts.

Note that the depositor remains the legal owner of money in the custody of a bank, just as when you leave your car parked at an airport.

Banks become competitive service providers - professional money handlers with no power to expand or contract the money supply.

I make the observation that many people are currently under the illusion that this is how it is now.

New money to be created in lockstep with new real wealth and spent into the economy by the state. Note that in all probability this would be but a small fraction of total state spending. No state borrowing.

So you essentially want to stop people offering credit? Are you going to ban companies for invoicing with long terms too? How about mutual credit?

We just let the free market give and take. There is nothing wrong with FRB, as long as people know that they may lose their wad. If people don't want to use FRB, then they can use some sort of storage/safe bank as you suggest. As long as people are aware of the risks, then it is up to them if they want to take them.

TBH, the free market will provide alternatives soon enough anyway. The bankers' cartel days are numbered. Whether it's PMs, ripple pay, bitcoins, the power is moving away from the big banks... not that they will give in easily, mind. The bankers will lose either way.

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So you essentially want to stop people offering credit? Are you going to ban companies for invoicing with long terms too? How about mutual credit?

We just let the free market give and take. There is nothing wrong with FRB, as long as people know that they may lose their wad. If people don't want to use FRB, then they can use some sort of storage/safe bank as you suggest. As long as people are aware of the risks, then it is up to them if they want to take them.

TBH, the free market will provide alternatives soon enough anyway. The bankers' cartel days are numbered. Whether it's PMs, ripple pay, bitcoins, the power is moving away from the big banks... not that they will give in easily, mind. The bankers will lose either way.

I'm not sure that the concept of "free market" is compatible with FRB. Some commentators seem to have reached a position that FRB is unavoidable/inevitable/too big to change/insert other reason and the way forward is a Tobin style tax or transactional tax to correct the playing field somewhat.

I'm aware of one loan company which is based on lending between individuals (the name escapes me, think it begins with Z) as an alternative, but I don't see any serious alternatives to the monetary system arriving soon. Of course some opt out of the tax system altogether and are paid in cash but that doesn't remove them from the monetary system. Likewise I've done "work in kind" for people (e.g. I build you an application and you decorate my house) occasionally but it's not really practical.

The banks and governments are one and the same thing; Governments like the current system as it enables them to buy votes. Right up to the point where it stops working. No Government is going to opt out of that system. Until they all have to opt out, e.g. there has to be complete and total collapse first.

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So you essentially want to stop people offering credit? Are you going to ban companies for invoicing with long terms too? How about mutual credit?

We just let the free market give and take. There is nothing wrong with FRB, as long as people know that they may lose their wad. If people don't want to use FRB, then they can use some sort of storage/safe bank as you suggest. As long as people are aware of the risks, then it is up to them if they want to take them.

TBH, the free market will provide alternatives soon enough anyway. The bankers' cartel days are numbered. Whether it's PMs, ripple pay, bitcoins, the power is moving away from the big banks... not that they will give in easily, mind. The bankers will lose either way.

No. Credit / lending can readily occur with non-debt based monies. However to lend there is a direct transfer.

A simplified version goes thus -

You have amount xxx in your account, and you tell your bank they can use yyy amount of it to lend out for time period zzz earning you interest on yyy. yyy is deducted from you account and transferred to a borrower. After zzz is over yyy+interest is paid into your account.

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No. Credit / lending can readily occur with non-debt based monies. However to lend there is a direct transfer.

A simplified version goes thus -

You have amount xxx in your account, and you tell your bank they can use yyy amount of it to lend out for time period zzz earning you interest on yyy. yyy is deducted from you account and transferred to a borrower. After zzz is over yyy+interest is paid into your account.

That ain't the problem with FRB credit, or why it occurs.

if you lend yyy amount out, it goes to someone else who will then put it back in the system and lend it ou tagain.

The choke point of the system (and the reason why all banking is fraud) is the moment the money goes back into the banking system - the banks do not ask where the money came from. They just process it as if it does definitely belong to the customer with no checks. In fact, it might well be the banks money - and receiving it should cancel any debt associated with it. (In the same way that if you found someone with your coat on and took it back that would be the end of the matter from your PoV.)

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That ain't the problem with FRB credit, or why it occurs.

if you lend yyy amount out, it goes to someone else who will then put it back in the system and lend it ou tagain.

The choke point of the system (and the reason why all banking is fraud) is the moment the money goes back into the banking system - the banks do not ask where the money came from. They just process it as if it does definitely belong to the customer with no checks. In fact, it might well be the banks money - and receiving it should cancel any debt associated with it. (In the same way that if you found someone with your coat on and took it back that would be the end of the matter from your PoV.)

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So you essentially want to stop people offering credit? Are you going to ban companies for invoicing with long terms too? How about mutual credit?

We just let the free market give and take. There is nothing wrong with FRB, as long as people know that they may lose their wad. If people don't want to use FRB, then they can use some sort of storage/safe bank as you suggest. As long as people are aware of the risks, then it is up to them if they want to take them.

TBH, the free market will provide alternatives soon enough anyway. The bankers' cartel days are numbered. Whether it's PMs, ripple pay, bitcoins, the power is moving away from the big banks... not that they will give in easily, mind. The bankers will lose either way.

Trade credit between informed, consenting and risk accepting parties is fine. Why do you suggest otherwise?

Mutual credit means lenders pooling their monies and borrowers borrow from that pool. Again, no problem.

What is proposed is a national currency that cannot be issued by any agency other than the state. In free market terms, think of the state as one agency among many which makes sure that its currency cannot be counterfeited.

If a bunch of people want FRB then let them organise their own FRB complementary currency. Just so long as they pay their taxes back to the state in the national currency (not promises of it) at the going rate of exchange. Let’s see then which currency is preferred and perceived as more reliable and robust.

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Trade credit between informed, consenting and risk accepting parties is fine. Why do you suggest otherwise?

Mutual credit means lenders pooling their monies and borrowers borrow from that pool. Again, no problem.

What is proposed is a national currency that cannot be issued by any agency other than the state. In free market terms, think of the state as one agency among many which makes sure that its currency cannot be counterfeited.

If a bunch of people want FRB then let them organise their own FRB complementary currency. Just so long as they pay their taxes back to the state in the national currency (not promises of it) at the going rate of exchange. Let’s see then which currency is preferred and perceived as more reliable and robust.

So you want no changes then?

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I'm not sure that the concept of "free market" is compatible with FRB. Some commentators seem to have reached a position that FRB is unavoidable/inevitable/too big to change/insert other reason and the way forward is a Tobin style tax or transactional tax to correct the playing field somewhat.

I'm aware of one loan company which is based on lending between individuals (the name escapes me, think it begins with Z) as an alternative, but I don't see any serious alternatives to the monetary system arriving soon. Of course some opt out of the tax system altogether and are paid in cash but that doesn't remove them from the monetary system. Likewise I've done "work in kind" for people (e.g. I build you an application and you decorate my house) occasionally but it's not really practical.

The banks and governments are one and the same thing; Governments like the current system as it enables them to buy votes. Right up to the point where it stops working. No Government is going to opt out of that system. Until they all have to opt out, e.g. there has to be complete and total collapse first.

FRBs can exist in a free market - it did in the past. In fact, it started with gold being deposited at jewellers, with receipts given in return. You don't need a government to have a FRB bank.

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No. Credit / lending can readily occur with non-debt based monies. However to lend there is a direct transfer.

A simplified version goes thus -

You have amount xxx in your account, and you tell your bank they can use yyy amount of it to lend out for time period zzz earning you interest on yyy. yyy is deducted from you account and transferred to a borrower. After zzz is over yyy+interest is paid into your account.

That's not really credit, it's lending. I can give you credit, without having any money. I can't give you a loan, if I have no money.

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Trade credit between informed, consenting and risk accepting parties is fine. Why do you suggest otherwise?

Mutual credit means lenders pooling their monies and borrowers borrow from that pool. Again, no problem.

What is proposed is a national currency that cannot be issued by any agency other than the state. In free market terms, think of the state as one agency among many which makes sure that its currency cannot be counterfeited.

If a bunch of people want FRB then let them organise their own FRB complementary currency. Just so long as they pay their taxes back to the state in the national currency (not promises of it) at the going rate of exchange. Let’s see then which currency is preferred and perceived as more reliable and robust.

Both trade and mutual credit increase liquidity, in a similar way to the way FRBs do. If you don't mind the former, why are you concerned with the latter?

Bitcoins are an international currency, that cannot be issued by any other agency other than by software fiat. That doesn't mean that people can't put them in a free market FRB. They don't have to use an FRB, as Bitcoins can be kept safe (with the correct precautions) and can be traded between parties without a bank. Nevertheless, FRBs can still exist and do business in this environment.

Edited by Traktion
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Both trade and mutual credit increase liquidity, in a similar way to the way FRBs do. If you don't mind the former, why are you concerned with the latter?

They differ markedly from FRB.

Typically trade credit is a contract between a seller S and a buyer B manifesting as B’s IOU to S. Though factoring might make the contracts tradable to some extent, even a multitude of them does not make a currency in the same way as FRB does. The contracts are not fungible.

Mutual credit, as I understand the term, is straightforward lending with pooled monies. Here there is no question of an increase in currency since, in both the present and proposed systems, purchasing power is simply transferred from one party to another.

FRB in the national currency hands to the commercial lenders the powers to expand, contract and allocate the economy’s essential and principal means of exchange. These excessive powers are then inevitably and grossly abused, as we see all around.

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They differ markedly from FRB.

Typically trade credit is a contract between a seller S and a buyer B manifesting as B’s IOU to S. Though factoring might make the contracts tradable to some extent, even a multitude of them does not make a currency in the same way as FRB does. The contracts are not fungible.

Mutual credit, as I understand the term, is straightforward lending with pooled monies. Here there is no question of an increase in currency since, in both the present and proposed systems, purchasing power is simply transferred from one party to another.

FRB in the national currency hands to the commercial lenders the powers to expand, contract and allocate the economy’s essential and principal means of exchange. These excessive powers are then inevitably and grossly abused, as we see all around.

I spent today reconciling accruals. Over 30 Million on the receivables. A few million on the payables. Multiply that by a few thousand companies and you have some credit trade.

Edited by Alan B'Stard MP
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They differ markedly from FRB.

Typically trade credit is a contract between a seller S and a buyer B manifesting as B’s IOU to S. Though factoring might make the contracts tradable to some extent, even a multitude of them does not make a currency in the same way as FRB does. The contracts are not fungible.

Mutual credit, as I understand the term, is straightforward lending with pooled monies. Here there is no question of an increase in currency since, in both the present and proposed systems, purchasing power is simply transferred from one party to another.

FRB in the national currency hands to the commercial lenders the powers to expand, contract and allocate the economy’s essential and principal means of exchange. These excessive powers are then inevitably and grossly abused, as we see all around.

Mutual credit is where you all start at zero and then "create money out thin air". One person gives another credit, resulting in one having a positive balance and the other a negative balance. As the credit may be measured in sterling, this is essentially diluting the money supply, in a similar way to a FRB. In fact, FRBs act like a big mutual credit node, whether people realise it or not (ie. 'savers' are creditors and 'borrowers' are debtors).

This is why I am puzzled as to why you think mutual credit is fine, but not FRBs.

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Well, if we're going hollywood, then Terminator 2's 'No fate but what we make'..

There is no physical reason why we cannot have a world of 10 billion people living at 1st world standards. There is no physical reason why anyone has to go hungry or un-housed; the problem is more that a huge proportion of our surplus productivity ends up in the pockets of the rentier class. Plus plenty of ideological misconceptions, cronyism and the rest, of course..

Socialism doesn't work, but neither will capitalism. As you've suggested above, the global 1st world utopia is counterintuitive to self interest.

Corporatism = game over.

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That ain't the problem with FRB credit, or why it occurs.

if you lend yyy amount out, it goes to someone else who will then put it back in the system and lend it ou tagain.

The choke point of the system (and the reason why all banking is fraud) is the moment the money goes back into the banking system - the banks do not ask where the money came from. They just process it as if it does definitely belong to the customer with no checks. In fact, it might well be the banks money - and receiving it should cancel any debt associated with it.

Surely, if you borrow $50 and are asked to pay back $10 installments the implication is that you the borrower understand you are not being asked to return the orignal $50 note? :unsure:

Unless of course you are meant to tear it up into 5 pieces? :o

Something doesn't add up. :(

Edited by Alan B'Stard MP
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Surely, if you borrow $50 and are asked to pay back $10 installments the implication is that you the borrower understand you are not being asked to return the orignal $50 note? :unsure:

Unless of course you are meant to tear it up into 5 pieces? :o

Something doesn't add up. :(

"I offer to return to you something which I didn't borrow."

Seems a very odd, doesn't it.

Why do people bother, I wonder?

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  • 2 weeks later...

Mutual credit is where you all start at zero and then "create money out thin air". One person gives another credit, resulting in one having a positive balance and the other a negative balance. As the credit may be measured in sterling, this is essentially diluting the money supply, in a similar way to a FRB. In fact, FRBs act like a big mutual credit node, whether people realise it or not (ie. 'savers' are creditors and 'borrowers' are debtors).

This is why I am puzzled as to why you think mutual credit is fine, but not FRBs.

Thanks Traktion, it is always useful to understand each other's terminology. :D

To use Bill Still's phrase, the big question is always: Who controls the quantity of money?

If it is a limited mutual credit network as you describe, then fine. The users of the credit-money are the same crowd as the issuers of that same means of exchange. Responsibilty and risk are shared and distributed throughout the network.

If it is state issued money, spent responsibly and transparently for the common good into persistant circulation, then again fine. Though in a different way, the money users and the money issuers are the same collective. Money issued by the people for the people with the seniorage accruing to the public purse etc.

Of course there is a danger that unchecked mutual credit networks denominated in the national (publicly issued) money might gradually morph into FRB banking. An interesting area for analysis.

In reality what is parasitic upon and damaging to the non-banker majority is the current debt-based, commercially issued rent-a-currency system controlled by a cartel of commercial banks. It is the institutionalised amalgamation of the issuance and the commercial lending and borrowing of the national means of exchange that must be changed.

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  • 3 weeks later...

"I offer to return to you something which I didn't borrow."

Seems a very odd, doesn't it.

Why do people bother, I wonder?

Err... Isn't it because they send people around to break your legs if you don't?

Or the 21st Century equivalent - Death by persistent phone calls. :)

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