Free Trade and Fiat Money Fun
The Summary
by J. Walter Plinge


   1 Human / Civil Rights
            Predatory lending
   2  Exchange rates
            Money is not a commodity.
   3  Free Trade
            Buying the World
   4  Money Fundamentals — Money Science, Real Money
            Money is Local, Money is about trade, Barter
            The Hierarchy of Money
   5  Federal Reserve system vs. Mutual Credit System
            Similarities and Differences
            Extending Credit is not the same as Lending Money
   6  National Mutual Credit Banking system
            Money Creation
            More Money Creation
            The right to NOT create money
            Lending Money
            Islamic Banking
   7  State issued Money
   8  Conclusions

Another day older and deeper in debt,
Oh Lord doncha call me ‘cause I can’t come,
I owe my soul to the company store

— Big John, a 1950s U.S. pop song



Many years ago I wrote an article about money and one reader wrote back with a question. "Yes" she agreed, "money is popular, but WHY is it popular?" I have never been able to answer that question to my satisfaction but I have had some responses.
    Money today is popular because it's profitable... not for those who use it but for those who issue it. Money, like gasoline, is popular because commercial enterprises have created a society around it where all reasonable alternatives have been eradicated.
    Still the details (like, WHY?) were vague. Then I ran into this, by Warren Mosler:
African communities that were engaged in subsistence production and internal trade had no need for European currency. Walter Rodney reports on a widespread practice employed by the colonial powers to force Africans to use their currency:...colonial governments forced Africans to produce cashcrops [ie labor for money] no matter how low the prices were. The favourite technique was taxation. Money taxes were introduced on numerous items cattle, land, houses, and the people themselves. (Rodney, 1972, p. 165) ... In addition, as the only local source of British pounds, the colonial authority was also in a position to determine the price it would pay for those goods and services.

So there’s the answer: Using government money forces people to be dependent on working for money rather than being self-sufficient and they have no control over the value of their labor.

1.              CIVIL RIGHTS

Feeling more and more like Big John these days? Wondering why nobody seems to like the U.S.? Wondering why the media keeps saying that the war against terrorism involves, “... military intelligence, international cooperation, and banks”? First, one must to understand The Big Lie.
    The lie is the seemingly innocuous fact that banks claim to be lending money when it is the borrower who is creating money. Depending on who you read, US banks can now create between $30,000 and $70,000 for each $1,000 deposited.
    If there is the slightest doubt here, you must check it out; here's the confirmation from Edward Flaherty. More neat stuff can be found at  Flaherty’s website .  Flaherty is a professor of economics and stalwart spokesman for the Federal Reserve System. If he admits it, then it’s gol-dang true.  For further confirmation, see Gary North


Start at the beginning: when I give you my IOU, I am creating  money. Right? Putting a currency into circulation — ok? Well it's the same at the Mutual Credit Bank (explained below); the MC banking system never claims to be “lending Money” — only to be extending credit. Or to be allowing the client to create credit. Well, it's the same with commercial banks too: they approve credit. But When Smith signs the mortgage papers at that commercial bank, HE creates credit money and HE is responsible to repay it. The commercial banker is only a clerk who approves Smith's credit, thereby creating money out of thin air. And then charges an exorbitant interest on the “loan,” as if the money had existed all along.

The Lie is that the banker claims that he is “Lending Money” from his vault when he's actually conjuring up the money from thin air. The Bigger part of the Big Lie is that any “creditworthy” person can get a loan. This is a civil rights issue. (The Largest part of the big lie is that banks have the right to create money, but we’ll get to that later)
    Credit cards and checking accounts demonstrate the principle of money creation, albeit on the back of the federal money system — but you can get the picture: when you write a check, you “create” money... ok? Now imagine a society where only certain elite group, say... bankers, corporateers and politicians, are allowed to have a checking account or credit cards, and you start to get the picture about how civil rights fits in.
    Money, like free speech, should properly flow from the individual. But that is not the case today. Taking the power of money creation away from the individual is a civil rights issue.
    Credit is uneven and undemocratic in the US as well as the rest of the world.  Banks refusal to lend to ethnic minorities in the US has always been a problem (sandard practice, called redlining) and that has kept minorities ‘in their place,’ for a long time, but the problem goes exponentially deeper than that; there is a bias toward lending to corporations and against individuals. In a sense, individuals are considered “sub-prime” credit risks while corporate bodies are considered “prime” borrowers. For example: when a corporation wants some money they can simply create it by issuing corporate bonds. Can you do that? If not then maybe it's because you are a “high risk” sub-prime borrower.

Further example:

From Molly Ivins, Seattle Times, 5 Oct 1998 p. B5
Long term Capital used $2.2 billion in capital from investors as collateral to buy $125 billion in securities. Then it used those securities as collateral to enter into neato financial transactions valued at $1.25 trillion... [the deal then went bust]”
    “The Federal Reserve Bank of New York decides that the ‘sophisticated’ investors in Long Term Capital ... should not be allowed to lose their money. And so, the New York Fed brings in Goldman Sachs, Merrill Lynch, UBS of Switzerland, J.P. Morgan and others,” to put up the $3.5 billion bailout.
    Can you buy a house like that? 0.175 percent down? Does the Federal Reserve board step in when you have a problem with the mortgage? Then maybe there is an uneven playing field. The irony here is that your battle for “creditworthiness” is against fictional entities called corporations which enjoy more rights than actual human beings, and virtually none of the personal responsibilities. This is definitely a civil rights issue.

The stories are legion:

A representative of the SBA (Small Business Administration — which, by the way, defines “small” as “30 or more employees”) appeared on BBC radio a few months back to explain how business is conducted in the US. One of the details he emphasized is that when a borrower has messed up and LOST a few million dollars, the SBA does not disparage such characters from having another go. In fact, he stressed, they are encouraged because they have “learned” something. Our representative proudly announced that they have had such clients return 3... 4... even 5 times.
    But if an individual goes bankrupt he or she is hauled into court and his or her credit is kaput for 7 years.
    As it happens, the US Congress was busy at this particular time, tightening the bankruptcy laws as they apply to individuals and “sub-prime” borrowers and locking down the credit card laws. Individuals facing bankruptcy are now “means tested” and families earning over $51,000 have to file under Chapter 13 instead of 7. As a result they cannot be absolved of their debt entirely (as can a corporation) but will have 3 to 5 years to pay off credit card debt under court order.



Now as through this world I ramble,
I see lots of funny men,
Some rob you with a six gun,
And some with a fountain pen.

                               —Woody Guthrie, Pretty Boy Floyd.

What we have here is a banking system based on ... you guessed it: predatory lending.  What is predatory lending? Let Henry explain:
    “For example, if a bank lends to a trust client who is a minor, or who had no business experience, to start a risky businesses, that resulted in the loss not only of the loan but the client trust account, the bank may well be required by the court to make whole the client.
    “Now, there is a close parallel in most Third World debts, to the above example where sophisticated international bankers knowingly lend to dubious schemes merely to get the fees and high interest, knowing that ‘countries don't go bankrupt’ as Walter Wriston famously proclaimed.  The argument for Third World debt forgiveness contains a large measure of lender liability.

— Henry C.K. Liu, from Email, 02 Mar 2001
(Henry teaches economics at University of Colorado)
So there are laws to protect you from the predators. But as usual the details are always in the language. There  are innumerable predatory lenders out there many of whom specialize in the practice, Citigroup being the largest in the US. Their website proclaims as much: “Citigroup is the largest sub-prime lender in the country.”
    Notice the language. For the same reason a bribe in the US is called a “campaign contribution,” the predator now becomes a “sub-prime lender.” Of course the sub-prime lender follows “very strict regulations” as does the “campaign contributor.”  For a sampling of the regulatory process you might like to visit the U.S. House of Representatives, Committee on Banking and Financial Services, where they make the regulations.
The discussion centers around sub-prime lenders and two examples of their practices are cited:

“Mr. LaFalce:  An example is cited, a bank which offered a Visa/MasterCard with a limit to $1,500, although in the fine print it said it was only required to extend $400. The catch to getting the card was that the customer had to agree to a bank-sponsored credit education program for a fee of $289 plus $11.95 in shipping and handling. The card also came with an annual fee of $49 and a processing fee of $19. And the author of the letter goes on to cite numerous other examples.”
    “Another bank offered a deal to sub-prime customers that is similar. While working with a third-party financial institution, the bank targeted customers by telephone and offered a card with a $600 credit limit. The card also charged $20 application fee and a travel certificate that cost $545”
    But in 81 pages of testimony there is not the slightest hint that these practices were wrong except by the speaker, and certainly not any talk about regulating such practices.
    So from the Citigroup website we can read, “Typically, recipients of sub-prime loans pay higher fees and other costs, but these loans are not necessarily predatory.”
    A banking system that makes borrowing more costly for poor people than for rich people. Not Predatory. Right.

But Shareholder Action Network sees things in a different light. To them the words Sub-prime and predatory are virtual synonyms.
    “The industry frequently cites the fact that poor borrowers are a greater financial risk, and therefore the lender needs to charge higher interest, include credit insurance, etc. However, if risk were truly in line with the interest rates and fees of the loans, profits would resemble those of regular banks . . . According to Forbes Magazine, 'Sub-prime consumer finance companies have returns up to six times greater than those of the best run banks.' . . . With predatory loans, the interest and points are unconscionably high, especially considering that these are fully collateralized loans, . . . Fees may total 15 to 20 percent of the loan amount.
    And so it is that Citigroup recently acquired Associates First Capital, the second largest sub-prime lender in the US.

An interesting citation... evidently farmers have a problem getting credit too:
“ ... Katherine Ozer, executive director of the National Family Farm Coalition, a network of grassroots organizations ...says the farm debate should focus on conservation, rural development, ACCESS TO CREDIT, fair income, and food access that better links farmers to low-income groups.” (emphasis added)

When corporations and rich people are “prime” and Everybody Else — including third world nations — are “sub-prime” then the credit system is hugely un-democratic.  The problems are built into the banking systems world-wide and it is a civil rights matter.


If Cuba has successfully carried out education, health care, culture, science, sports and other programs, which nobody in the world would question, despite four decades of economic blockade, and revalued its currency seven times in the last five years in relation to the US dollar, it as been thanks to its privileged position as a non-member of the International Monetary Fund.
Address by Dr. Fidel Castro Ruz to The Group of 77, Havana, April 12, 2000



2.            EXCHANGE RATES

"If India had acquiesced in making its currency fully convertible, it could have been listed among the countries in crisis today."

Hindustan Times, January 12,1998
" Vulture Capitalism," by N. C. Menon, P. 1 


It should be clear to even the most economically challenged person that the price of stocks on Wall Street have no basis in real terms. They form bubbles and they burst. Well, Currency exchange rates are determined the same way stocks are valued.
    Exchange rates are not determined by anything real like the value of labor or commodities. They are determined by investment houses in New York, London, Singapore and Tokyo who bet on their favorite team. Does the dollar look good today? Then place your bets, gentlemen. If enough of the gents bet on a “hard” currency like the dollar, then the dollar goes up and they can celebrate their remarkable perspicacity with cheaper Cuban cigars and a less expensive Russian vodka.
    This is like having the score of a baseball game determined by letting a gaggle of sports aficionados argue about each team's merits and then determining the final score based on the results of the debate, rather than what actually happened on the field.
    In case you didn't catch that the first time: it's like letting the audience of the David Letterman Show determine the score of a baseball game, a week before the game, by screaming into the Applause-O-Meter ... and then calling the audience, “the experts.”
    Now, if you imagine that one of the baseball teams is made up of Southern and Eastern Players while the opposing team, as well as the aficionados, are of primarily Northern and Western extraction, then the picture comes into sharper focus.  We do this after having passed through the “Age of Enlightenment,” and Tom Paine's “Age of Reason” and arrived at the information age unscathed.
    There has got to be a better way of determining currency exchange rates.

    “Anyone who claims that the best system we can devise is one that allows the yen/dollar exchange rate to fluctuate from 120 to 80 to 120 — a swing of 50 per cent in each direction over an 18 month period — must be asked to think again.

 “New Economic Realities” by Ismail Serageldin
Al-Ahram Weekly, 27 Jan. - 2 Feb. 2000, Issue No. 466, Cairo

  But there are those who profit from exchange rate swings and they will steadfastly defend a flawed system. These people are generally called “Economists” in the media.
    “... Citicorp’s purchase in May [2001] of Mexico’s largest bank, the Grupo Financiero Banamex-Accival, or Banacci, for $12.5bn, is being seen in the financial press as the precursor to a flood of US takeovers of Mexican companies, or what Grey Newman, chief Latin American economist at Morgan Stanley Dean Witter, called a ‘Wall of Money.’  Damian Fraser, an analyst at UBS Warburg, is quoted in the Financial Times as rating Mexican companies as having a 40 per cent lower purchase price than equivalent companies of equal profitability in the US.

The Ecologist, Banking on Mexico, vol. 31 No. 6 July/August 2001, p.9

  Yes indeed. Things are a lot cheaper in Mexico, Asia, Russia, South America, etc., once their currency has been driven into the ground by people manipulating the exchange rates. Is this all done on purpose?
    Henry Liu: “A controversial feature of the new shape of the financial system is that the bulk of its participants now have a vested interest in instability. This is because the advent of high-technology dealing rooms has raised the level of fixed costs. High fixed costs imply a high turnover is required for profitability to be achieved. High turnover tends to occur only when markets are volatile. In a way, the most destabilizing environment for modern financial institutions is a relatively stable exchange rate environment.

    James Tobin: “It is hard to escape the conclusion that the countries' currency distress is serving as an opportunity for an unrelated agenda such as the obtaining of trade concessions for US corporations and expansion of foreign investment possibilities.

                            Hindustan Times, citing economist James Tobin, January 12,1998,
                            “Vulture Capitalism,” by N. C. Menon, Page 1

The following is an extremely condensed version of the article “The Time Value of Money” BY  Bob Blain, Ph.D. Professor of Sociology at Southern Illinois University at Edwardsville.

(The original chart shows 74 countries)

                             Exchange Rate        Exchange Rate in Minutes
   Japan                          145.61                                   2.4
   Switzerland                  46.65                                    2.5
   Germany                       45.71                                    3.0
   United States                  1.49                                    3.1
   El Salvador                    12.61                                 82.7
   Honduras                         8.02                                259.8
   Bangladesh                     50.92                                415.5

FIRST COLUMN: Exchange Rate
This is the country's exchange rate in 1995 — that is: $1.49US will buy you 145 Japanese Yen, or 8.02 Honduran Lempira.

SECOND COLUMN: Exchange Rate in Minutes
This is the amount of time, on average, a citizen in each country spends to earn that amount of money. That is: for 2.4 minutes, a Japanese worker can buy 415 minutes (nearly 8 hours) of Bangladeshi time via the currency exchange casino.

Economists have no problem with this state of affairs. As Richard Stimson said in his book, “Probably more economists agree on the issue of free trade than any other question.” But there is a niggling question here, and Blain puts it this way:
    “Are these differences due to differences in productivity? If that were so, we should expect the products of the most productive countries to be cheaper, not more expensive, than the products of less productive countries. Instead, exchange rates make the products of the supposedly most productive countries more expensive than those of the least productive countries. It is directly opposite to what fair price would dictate.”
    The above is by no means the definitive article on exchange rates, but it demonstrates that there are simple means available to examine and determine fairer exchange rates.  


MONEY (today’s credit currency) IS NOT A COMMODITY

There have been currency crises in 87 countries since 1975.  Never in the history of the world have so many countries had such unstable banking systems. The cause is the foreign currency exchange market as well as the free movement of money globally. The cause of this is what some have called “high-tech” economics. Macro economics which says that currencies have nothing whatsoever to do with commodities.
    The entire exchange rate system is founded on (yet another) single Big Lie: “Money is a commodity.” So let's start at the beginning.
    Fiat money has no intrinsic value; that indeed, is the definition of fiat money (And to be painfully clear here, we are talking about all money that is lent into existence or simply created by a "lender of last resort," without a sound commodity backing, and not simply the Federal Reserve style fiat note). Fiat money is a valueless medium of exchange, not a commodity. While a gold backed note can be redeemed for gold, a fiat currency can be redeemed for only more fiat money. To say then, that this fiat currency shall trade for another fiat currency, based on its “market value” (which is zero) may raise the eyebrows of certain skeptics.
    However, if money was a commodity, the issue would be resolved. So modern economic theory cures the problem with a simple solution: decree. Money is now a commodity by edict, regardless of any dictionary definition, and contrary to all independent observation. It was by this same strategy that Peter Pan was able to fly.

There are probably a million ways to prove that money is not a commodity, but here's just one simple explanation.
    The gold backed dollar was an example of a commodity backed currency. A gold note was redeemable with a certain specific amount of gold, so the note itself might be seen as a commodity. A hat check is a good analogy of a commodity backed currency; when you check your hat, the commodity, you get a hat-check ticket which is essentially a commodity backed note. You can trade the hat check (this analogy would work better if everyone wore identical hats) to someone else, thus spending it... or you can redeem it for a hat.
    When the government withdrew the backing for silver and gold notes it essentially said “you can't have your hat back; you can only spend your note now.” Since most people never redeemed their notes for gold anyway, they didn't give it much thought but in the hat check analogy we can see that what the government has done by claiming that this newly irredeemable money is a commodity, is to say “the hat check, which earlier merely represented a hat, is now IN FACT a hat itself. You can wear the ticket on your head, hang it in your closet, or spend it as you please.”
    Money is not a commodity, exchange rates are humbug, and the consequences for 87 countries have been severe.


3.           FREE TRADE

If Tony Blair genuinely believes in the boundless opportunities of globalization (Financial Times report August 2nd), he should concentrate his energies ... and begin to dismantle barriers to the cross-border flow of labour. ‘Just Do It’, Mr. Blair.

— Martin Khor, Director, Third World Network
Letter to Financial Times, 11 August 2001

 “ Open trade is not just an economic opportunity, it is a moral imperative. Trade creates jobs for the unemployed. When we negotiate for open markets, we're providing new hope for the world's poor. And when we promote open trade, we are promoting political freedom.

— G. Dubya Bush


In 1976 Milton Friedman made the case for Free Trade and got the.. ahhh...whooo..  I almost wrote “Nobel Prize” there didn't I.  But of course he didn't get the Nobel Prize for Economics, because there is no such thing. Nobel never specified an economics prize — you can look it up in any Almanac, or see: CEPA
    It is actually the Riksbank Prize for Economics that Friedman got. Check it out: In the late 1960s, the Swedish central bank (Sveriges Riksbank) established a prize known as the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.” Anyway Friedman got his “prize” for saying (paraphrase) “MMMM-mmmmm free trade, the wave of the future.” Or something like that. If you really need the exact wording, it's here.

    Now I am just wondering here, Friedman is a trained economist, right? I mean he went to school; he studied and finished his degree, right? Somebody help me out here if I am wrong about this. What I am wondering is if he ever studied what free trade is in Econ 101, because free trade is about mobility of raw materials, capital, labor and products. So how can it be that a prize-winning economist of any sort, can promote “free trade” without ever mentioning the mobility of the labor force? What school exactly did Friedman go to?
    Chakravarthi Raghavan puts it this way: “[about the past damage to poor countries caused by free trade] . . . this important condition [mobility of labor] is normally brushed aside in economic literature by assuming either perfect competition in commodity markets or perfect mobility of labour and capital once administrative barriers to trade are removed.
    That is to say, economists simply assume that all labor is mobile when they surely know for a fact that labor is not mobile.

This freedom of workers to move about is fundamental to Interstate Commerce, so revered in the US; they should know about these things. To prohibit a Texan from going to California to seek his fortune in the music industry might seem like a merciful idea but it would be a “restraint of interstate commerce.” Workers in the US and the European Union can go where the work is.  That is fundamental to free trade. But in the Global “Free Trade” Market they cannot.
    Nonetheless, not a day goes by without someone in the British media raving on about “bogus asylum seekers” and “economic migrants.” Same thing in the US.
    Molly Ivins (Seattle Times, Jan 11, 1999, B5) noticed that the Immigration an Naturalization Service (INS) got a revamping in 1996. More money; more power. Coincidentally this was the year after the WTO was formed in Uruguay. The INS budget was increased to nearly a billion dollars a year; more than the FBI, more than the Drug Enforcement Administration with their famous war on drugs, and more than Customs. Check bouncing is now a deportable crime for LEGAL immigrants. The INS now sports 15,000 armed officers with arrest powers. Says Molly, who noticed the focus of arrests on Asians, Africans, Cubans, Latin Americans and Haitians, “... you notice that immigrants from Europe or Australia do not seem to end up languishing in the hoosegow for years while the INS looks over their paperwork.” But minorities do. A Cuban who bounces a check can now get a “life sentence” because they are not deportable, since the US does not have diplomatic relations with Cuba because of ... aaahh... Cuba's human rights abuses.
    When the labor force is locked in by passport and visa laws, we do not have free trade. When refugees are turned away because they are “economic migrants” it is sheer quackery to suggest that money and merchandise should move freely without borders in the name of free trade.
    To argue against this thesis is to argue in favor of lying, deceit and duplicity... but that's just what today's economists argue. As one recent critic put it, for example, “Now let’s examine the impact of removing passport and visa laws: squarely in the hip pocket.” (That is, it’s too expensive to consider)
    What our critics always ignore is that the other solution — the easier solution  — is to stop promoting the fundamentalist free trade dogma of the IMF, the World Bank, GATT, NAFTA, FTAA, MAI, GATS etc. That is, if our critic cannot bring himself to opening up the borders then the obvious solution is to stop the lying and duplicity. And since we do not in fact have free trade then all of the other trade policies of the IMF et. al. become equally questionable.
    Yet the policies of these institutions always remains the same: austerity policies or structural adjustment policies, like user fees for essential services like primary health and education or abrupt increases in the price of water in the name of market 'reforms,' more layoffs, less government spending on social programs, less credit for small farmers and small businesses, more privatization, pressure to export, slashing of workers' rights and environmental standards, liberalization of trade policies — all of these policies have nothing to do with “free trade” because “free trade” does not exist. The policies are clearly aimed to produce higher profits for multinational corporations. And none of these trade organizations have shown any willingness to open their meetings to discuss matters such as these.
    The obvious point that is being avoided is “why does free trade hurt poor countries” and the answer is because the people in rich countries who promote free trade with one hand, are blocking free trade with the other, with border patrols and passport laws.

The question remains: if economists are willing to lie about free trade then where does the doctrine of deceit stop?  For a bit more on that topic try:

How the Economists Got It Wrong” by James K. Galbraith, a crystal clear description of the Old Boyz Network in the education system.

also, The French Economics Students Revolt and the post-autistic economics newsletter (in English)
and The American Economics Students Revolt: 346 people have now signed the Cambridge Proposal and the “Kansas City Proposal” .


BUYING THE WORLD  With money pulled from a hat.

By the late 1970s, there was a huge increase in the dollars floating around the world economy - the rate of growth in dollars between 1973 and 1980 was 20 times the growth in volume of trade.”

Adventures of the Dollar, by Howard M. Wachtel,
professor of economics at the American University, Washington, DC


The trade deficits started modestly in 1975,” wrote Richard Stimson (Playing with the Numbers: How So-called Experts Mislead Us about the Economy” Westchester Press, 1999) and here are some late figures on that.

        1995    $180 billion
        1996      184 b
        1997      198 b
        1998      298 b
        1999      372 b
        2000      409 b

To date the US has now bought a modest 3 trillion dollars worth of the world's finest commodities with money conjured up with the help of a magic wand. Nowadays the US is buying the globe at the rate of over a billion dollars a day.
    And the best part is that you can conjure up and lend US dollars from nothing, but you get paid back in uranium, gold, diamonds, copper, oil, grains, vegetables... all sorts of nice things. The question remains unanswered: why do southern countries fall for this stuff?

This link may help explain things:
In Focus: Multilateral Debt Burden by Soren Ambrose
    “Key Point: The IMF and the World Bank are 'preferred creditors' who gain power over impoverished countries as the amounts owed to them increase.”
(also, see: Predatory Lending above)

And what will happen when the poor suckers in the South figure it out? Well, then we go to Plan B: Star Wars.
The U.S. Space Command, set up by the Pentagon in 1985, describes itself in  ‘Vision for 2020’ this way: ‘US Space Command dominating the space dimension of military operations to protect US interests and investment’.
You gotta love that word “investments.”

From Karl Grossman, professor of journalism at
the State University of New York College

In the past 30 years the US has bombed or attacked Syria, Lebanon, Nicaragua, Sudan, Korea, Vietnam, Cambodia, Laos, Iraq, Guatemala, Japan, East Timor, Nicaragua, El Salvador, Colombia, Dominican Republic, Somalia, Haiti, Yugoslavia, Panama. What do these countries have in common? They are all non-members of the World Trade Organization. Since the invention of the WTO only Japan has joined willingly; the South American countries and have been “persuaded” by friends such as Mr Pinochet.
    As Gore Vidal observed: “The United States is always at war; perpetual war for perpetual peace.” And it looks like the wars of the  future will be fought against non-WTO members.



Poor countries producing commodities cannot possibly compete
against rich countries producing credit money.




“... We have a problem trying to define exactly what money is...the current definition of money is not sufficient to give us a good means for controlling the money supply...”

— Alan Greenspan, 17 February  2000
Congressional testimony



Arthur Clarke once said that people were a science and he backed up his thinking by noting that electricity is a science. Even though at any given time one cannot predict what a particular electron might do, one can predict with great accuracy what the masses will do. People, said Clarke, are the same. And, I say, money is the same.
    The whole point of analyzing money at it's roots is that if the basic assumptions are wrong then all that follows will be flawed and open to abuse. If physicists continued to assume that the atom was miniature of celestial bodies then all progress in that field and in related fields such as engineering, architecture, chemistry — virtually the entire modern world — would have ground to a halt a hundred years ago.
    Furthermore, the science of money and the implementation of that science are two separate things. Physicists talk about ‘absolute zero’ temperatures and absolute vacuums when neither is achievable in real life. But worries about implementation cannot stop them from the realities of theory. And so it is for money: one cannot stop every few minutes to ask “but how can we implement this?” One has to get the theory right and once that is settled, deal with the best and most acceptable implementation.

SO . . .


When Smith gives Jones a bushel of wheat for a bushel of corn, economists tell us we have a barter transaction. What we actually have is two sales and two purchases, in one concise, efficient, transparent, transaction. But where is the money?
    The money is the corn and the wheat.
    Recall that various cultures throughout history have used different things for money, such as cattle, salt, gold, tobacco, seashells, or... corn and wheat.
    The first money, what I will call REAL Money, to be clear, is commodities (goods & services, including labor). Smith is using wheat as money; Jones is using corn as money and both are acceptable to the other.
    Since the term “money” has come to mean a “coin” or “note” or “gold” or “credit card” or “check” and has even become synonymous with “currency” the point has to be made very clear that the original money; the first money; the fundamental; the very root of all monies, as a “means of exchange,” is the commodities themselves.
    Real Money is commodities. ALL commodities. I must emphasize this because if that is incorrect then it remains to be shown which commodities are, and which are not, acceptable in trade or barter, and why. Remember this stuff for later — it's important.
    So.... if REAL money is commodities; What is money? Money is, if it's legitimate, a Commodity Substitute. But today, beware, because there are all kinds of money— some of them worthless.
   Traditional economists don't like this train of thought; even Thomas Greco, one of today's more modern monetary theorists, has rejected the notion. But the fact is that it is true and it is important.

At the CREATION level, where money first comes into existence, there are two main types of currencies:

1.    COMMODITY BACKED MONEY (ie gold note)
2.    CREDIT BACKED MONEY (ie. home loan)

(There is also the CIRCULATION level, checks, coins, notes, digital transfers etc. This paper does not deal with them because they are all just different, and less relevant, forms for moving money born at the CREATION level.)

    Commodity money is backed by, guess what?, commodities; it is redeemable, by the issuer for commodities. The model for commodity money is the IOU which is also redeemable by the issuer.
    Credit Backed money is also an IOU but redeemable sometime in the more distant future with something that doesn’t exist yet, won’t exist for quite some time, is less well defined and has more loopholes.
    As you get up to speed here you will come to realize that virtually all of our money today is credit money, and commodity money has been abandoned. This is not a good sign
    Another bad sign is this deal of creating money as credit. Here is how it boils down.

Smith's Credit vs Bank Credit

When Smith lends a bushel of corn to Jones' it looks like this
Smith  ----corn---->    Jones

When the bank lends money to Jones for a house it looks like this
Bank    ----IOU---->    Jones

(The bank gives an IOU to Jones because the bank creates the money out of nothing and it must then return it, or un-create it, when the loan is paid off) If Alan Greenspan doesn't know what money is, this is a likely cause: his money never had a definition to start with.  


People are local, communities are local, crops are local, rivers are local, lakes are local, the climate is local, mineral deposits are local, forests are local, and even the oceans are local, as you might find if you compare swimming in the Caribbean to swimming in the Antarctic. Only corporations, it seems, are global.
    Commodities vary from one region to the next. In the tropics they grow bananas and coconuts. In the mountains; coffee. Some regions have mineral deposits or fish and others do not. Each region has its own set of commodities. It should be clear then that, if commodities are local, and if Real Money is commodities, then Real Money is obviously local. By extension then all legitimate currencies have to be local. Talk of an international currency is subversive imperialist talk.
    Globalization may have its homogenizing effects and you may find Nike-wearing computer hackers from Argentina to the Netherlands, but climate is local and crops and mineral deposits will always be local. And money is local.
    If the present system is left in place, the US will end up with one region and that will look like New York City. Already the east coast of the US has merged into one large city and the west coast is going the same way.

When the Local quality of money is not respected, large metropolitan areas will inevitably colonize and degrade or destroy outlying territories. When you see a flock of Wal-Marts in Britain or a Red Lobster in Zimbabwe, that’s the first sign of infection.
    That is because areas like New York who produce nothing but money and consume everything else, create more (credit) money than the surrounding areas, so colonization such as they have done in Atlantic City, Miami, and Key West to mention just a few, becomes irresistable.
    When New York investors focused on Atlantic City for example, they created a boom which Americans are inclined to believe is good, but when the investors pulled out they left the town to decay, leaving hundreds of acres of rotting housing and hotels for the locals to deal with. They did not return the property to its pristine state before they left. For more on this, see “Money is Local
    A national mutual credit system could prevent the economic colonization and destruction of communities, as well as the economic subjugation mentioned above, where outsiders such as Mr. Dubya, decide school policies for areas where he does not live and will never have to send his kids.



subject: Re: I rephrased the question
date: Mon, 17 Jul 2000
from: "William F. Hummel" <>
to:  "J. Walter Plinge" <>

Hello Mr. Plinge, <snip>
Again, I can't make sense of your question. What does "tying the US dollar to the productivity of the economy" mean?  If you are referring to the exchange value of the dollar, that is determined in the market place, not by the Fed.  There is no way of knowing the 'productivity' of the economy except in looking back at the historical record...


Money is about trade. This statement risks being redundant in that it seems to state the obvious, but I can assure the reader that, in personal correspondence with bankers and economists (like the above), many have expressed confusion, dismay and even anger at the suggestion that money has anything to do with commodities. There is a large problem here. Seriously. Because economists can think of other uses for money, they resist this notion. They say money is:

a unit of accounting                an IOU
a store of value                      a standard a measure of value
a receipt for value                 a tool of empire
a medium of exchange            a tool for speculative profit
a system of accounting           a deferred payment
a transferable claim               a lien against value
an information system

While much of that stuff may be true, in the end it’s hard to deny the fact that money is about trade and commodities because...

without commodities there could be no money system. (!)

If there is an economist somewhere — anywhere in the world— who can refute that statement, please, let me know. I'd love to hear all  about it.
My e-mail address is below.


Money is a science and there are rules; scientific laws.
   The thing is that money is a specific thing, and it is NOT other things. There are some legitimate scientific rules actually. In the other sciences they are called "laws" but that term may be a little risky right now. The rash of free-market fundamentalists gripping the world today proposes that any restrictions on the use of money are, by definition, bad.  These are people who freely accept that one should not pour turpentine into the Mercedes' gas tank. That's a rule they can live with. They accept that there is a certain proper way to hold a Cuban cigar. They accept that as a good rule. And they are simply adamant about the rule forbidding white shoes after Labor Day. But any rules about money are rejected out-of-hand. Deregulation! they cry. These people should be sent back to school for a decent education.
    Money is about commodities and trade is about commodities. Money is about trade. And, yes, there are Laws of Money just like there are laws of gravity.


J.W. Smith, says that barter exchanges are “imperfect” and he will have lots of company in that opinion. Traditional economists scoff at barter. They say it's prehistoric. What their comments are to the fact that multinational corporations are increasingly turning to barter, I have not heard. Today around 20 percent of these companies' transactions are conducted with barter through organizations such as IRTA (International Reciprocal Trade Association).
    In Russia, before the IMF imposed over 200 structural reforms (!), more than any imposed on any other country, (the vandals are at the gate and they have torn it from its hinges), barter was used for 60 percent of transactions including payment of taxes (from the BBC Radio 4 series “The Red Menace” 1999).
    Barter may have its limitations but it is our present money system that is “imperfect.” In a barter economy a laborer would likely demand a minimum payment of food, shelter and clothing (even slavery included a modicum of health care). But in today's money system, in most cities around the world one can find full time employment that will not furnish even the funds to provide sanitary housing leave alone food or extras.
    I am not however advocating a return to barter; what I am advocating is a money system such as Mutual Credit, that delivers at least something close to the value that barter does.
    The truth is that barter is the most efficient, simple, secure, transparent transaction available. It is the money system today that is inadequate, arcane, unscientific, deceptive and confusing.  And expensive, if you count the thousands of economists writing billions of pages of convoluted analyses of a system so unnatural that most observers cannot understand why it didn't collapse twenty-five years ago. For just a tiny sampling of this paper jungle see  which stores:
          150 archives
          81,299 working papers,
          35,050 articles,
          1,063 series and journals.

In addition, it holds information about over
          5,700 economics institutions as well as over
          1,100 individuals who have registered with HoPEc

....and this is just one website... there are many others like it, or if you prefer, you can visit the 12 Federal Reserve regional sites... or read up on the stuff at the IMF site, the WTO site, the World Bank site, the Bretton Woods site, the ... the... possibilities are endless. More impenetrable papers have been written about economics, it would seem, than the entire field of nuclear physics. Only 5 percent of the US forests remain — if you are wondering where the trees went, I think we have the answer here.

The money and effort expended trying to keep this boat afloat
with bandaid fixes far exceeds the cost of honest repairs.


In the days of Marco Polo a trader might leave his home with a string of glass beads in search of exotic goods. Suppose he finds himself in India and he trades his beads for a flask of saffron. When our trader returns home he could use this saffron to buy many times the amount of glass beads than he had started with. And the trader in India would also be able to trade his or her new glass beads for many times the amount of saffron originally spent.  Both traders benefit from barter.
    Now consider the Southern spinach farmer. Modern technology can put the spinach farmer in touch with buyers in Europe or the US who already know where the cheapest spinach in the world is to be found. If the world price of spinach is $400 a ton, the buyer might, if he or she is feeling benevolent, offer $402 per ton. More likely they will offer $350.
    If this trade goes through, the buyer in the North will be able to exchange his or her new purchase for many times the original investment and the Southern farmer will be able to trade his or her newfound fiat money for . . .  nothing more than the value of the spinach they just sold. Marco Polo would not like this deal. This is a raw deal.

Today’s money is convenient. It is a convenient way of separating the producers of real goods from their market. With a legitimate commodity backed currency our spinach farmer would not have been deceived. But separating producer and buyer is also disadvantageous to the southern producer.
    By separating buyer and producer, the producer is not able to judge the real value of his or her own product — a skill that would be second nature in a barter environment where supply and demand are in face to face contact. In today's environment the grower judges the value of his produce only by what other producers are being paid, the “world price,” rather than the actual demand from the eventual buyers. That is, the law of supply and demand are subverted. For one example, the typical cashew farmer in Mozambique is paid 9 cents a pound for a product that retails for $9 a pound around the world. Producers of goods would do better in a barter system (they could scarcely do worse).
    Can it be any wonder that poor countries do not benefit from free trade?



All money is not created equal. Starting with the most secure money, barter, the further you go down the scale, below, the riskier the money is. For a social money, risk is the determining factor of whether a currency is “good” or “bad.”
    Money, like the air, the sun, the wind, and the rain, is Public Property. Nobody can own it or “privatize” it, and nobody can dictate the laws of money. It is not the place for a private banker or government bureaucrat to make a unilateral decisions about a public currency. That is, a society's money should be of the soundest type possible, and the decisions about money should be democraticly made.

  ->  Barter / commodities, (Real Money)
  ->  Commodity backed currencies ie. gold notes
  ->  The IOU (local, personal)
  ->  Local Credit currency (Mutual Credit)
  ->  Local Fiat currency (Ithaca Hours)
  ->  Centrally issued credit money (Fed Reserve notes, bonds)
  ->  Centrally issued unbacked fiat currency
  ->  Manipulatives/Speculatives (Stocks, mutual funds, pension funds)
  ->  Derivatives, hedge funds etc

The first 4 items above have none of the Factors That Degrade Currencies, below.

     It's credit money from a remote central source
     It's pure fiat money (not even backed by credit)
     It's money created or earned from speculation/ non-productive activity
     It's undemocratically issued, inequitably distributed money
     It's from a social money system run for profit
     Its redemption value is unclear
     Its redemption is paid in another unstable currency

For a really amusing article that turns this logic on its head see S. Bell's story,  a convoluted and backward explanation of the hierarchy of money from one of the Fed sycophants. Some people will say anything to keep their job when the pay is right.


“Money is an information system”  That's the latest soundbite. There is some truth to it depending on what kind of money we are talking about. The most secure form of money will have the most detailed information in a plain language.

->  Barter has that information, but it is stored in the traders' heads. Why Smith trades his collection of Buddy Holly records for a Barbra Streisand autograph is something that only Smith can explain and surely he could write a book about it. The point is that the information is detailed and whole. Nothing is missing: how else can you explain the fact that traders agree to accept as more valuable, that which their trading partner deems less valuable?
    In addition, there is no middleman. No, as J.W. Smith said, “governments, bankers, and subtle finance monopolists of every shade trying to siphon to themselves others' wealth.”

->  Commodity  backed currencies like the gold backed note are essentially barter by proxy. Bankers have avoided this system for centuries because it's easy to understand and profits from sub-prime borrowers would evaporate.  So Smith's siphon is under severe restraints in this model.

->  The IOU is the basic model of credit and commodity currencies. Credit currencies are inferior to commodity currencies. But a locally issued IOU is so secure that frequently the details are not written down. “I'll get you a new coat next time I go to town,” is sufficient. Just as frequently, when they are written down, there are details that are taken for granted based on custom and past history:

          “To Jean-Pierre: IOU one dinner for two.   —Walt”

With this IOU certain things are simply understood: dinner will be at 7 pm, not 3 am; it will not be boiled straw; the date will be established later and will not be inconvenient, etc.
    Look for this kind of information the next time you handle a bank note. The notion that a state issued note, with its one-size-fits-all, generic standardization,  can replace the IOU, and maintain any means of establishing value, is odd to say the very least. Yes, of course we can tell the difference between $.59 and $.58 but at the expense of all the other relevant information.

->  At the community currency level, speaking strictly about mutual credit, this is essentially an organized IOU system. The information is transformed into a more uniform method of establishing value by denominating currencies in hours and/or widely used commodities. Credit is extended interest-free. Smith's “siphon” is not yet in the picture. People pay for banking service but they pay their neighbors, not some high-roller in Bel-Aire, and they don't pay in blood.
    To rephrase that idea, if mutual credit were adopted nationally, high priced bankers would be replaced with local clerks and the cost of banking would drop to a fraction of its former self.

->  Local Fiat currency: Ithaca Hours have worked well for many years. The problem is that they are backed by nothing but faith; same as Federal Reserve notes they replace. The people running Ithaca Hours have the best intentions, but when they retire who will replace them and how trustworthy will they be?

->  Centrally issued  credit currencies such as we use today have no relevant information on them at all. The value of a note is not enhanced by having the signature of the Secretary of the Treasury on it. The only relevant information displayed is the denomination, which is “fungible.”  And that only informs you that a 5 dollar bill is worth five times a one dollar bill. When a pack of Rice Krispies costs $1.49 one day and $2.29 the next, what is the value of a dollar bill? When a cup of coffee costs 65 cents in Ames Iowa and $4.75 in Los Angeles, what is the value of a dollar bill as compared to a Japanese yen or German mark? Do prices rise or does money lose value? Or both? How will you ever know?
    At this level the “siphon” appears: the elite group authorized to create money while pretending to lend it from their vault. For profit. The pretence comes at a price. Any clerk can approve credit for a small fee — usually only a few dollars. Bankers who can claim to “lend” real money (when in truth they are simply approving credit) can command interest at <pick any number>.

  ->  Centrally issued unbacked fiat currency: slightly more slippery than the above. Or less slippery; it depends on the details.

  ->  The Manipulatives/Speculatives: Stocks, mutual funds, pension funds etc. carry Negative information. All positive information has been erased and you have to hunt for it on your own in the pages of newspapers or printed documents all in 4 point type and in arcane language that only your accountant can understand for $100 an hour. If your pension fund has not collapsed and you get a pension payment that is wildly more than you paid in,  it is because you are collecting money paid in by someone who will not be collecting it because s/he is dead, and the directors of the fund have inadvertently failed to seize it as their bonus (read the fine print!).
   I am being flippant here but for the past five years I have been listening to stories on BBC about how the British regulators have no power to help the millions of people who, for one reason or another, lost their life savings to these loosely regulated organizations. Every month there is a new disaster.

  ->  Derivatives, hedge funds - carry a cube root of negative information times the speed of light. Only five people in the world understand these things and they aren't talking. With almost no money as collateral, these guys manipulate billions of dollars to nobody's benefit but themselves.

_        _        _

    When a grocery-store coupon in the US (a commodity-backed currency) must, by law,  state “actual value 1/20th of a cent” on the face, should Federal Reserve Notes not be required to state “non-redeemable” on them?  And “Nominal Value, 4 cents,” (the cost of printing)?


Mutual Credit can be viewed as an extension of the long-established practice of trade credit which businesses offer to one another in the normal course of business. They simply sell to their customers on what is called “open account,” which means that they deliver the merchandise and bill their customer for the amount due. A certain amount of time is allowed for payment to be made. It may be 15, 30, or 60 days, or more, depending on the customs of that particular line of business.


There are a lot of similarities between Federal/commercial banking and the mutual credit banking system. Both create money out of thin air based on the borrowers collateral. Well, ok, I can't think of any more similarities.


->   When you pay a “loan” back to a Federal/commercial Bank, you pay it back with Federal notes; when you pay off a mutual credit loan you have to produce something of value acceptable to the community.
    The Fed banker simply assumes (incorrectly) that all money is equal. It is of no concern to him whether the loan is repaid with money earned from a hedge fund scam, a Savings and Loan deal, or from the sale of vegetables.  But the MC banker is concerned with all aspects of money and its impact on the community.
    So it is entirely within the scope of the MC bank to refuse to accept money “earned” from non-productive activities. If the MC banking system was operating during the Savings and Loan scam, all that speculative money that was permitted to flood the country after the bankruptcies would simply not have been recognized as legitimate and thus would not have been allowed to pollute the money supply.
    This is all connected to the initial definition of money: it is a Means of exchanging commodities; it is NOT a commodity in itself. So making money by manipulating public money is not a legitimate activity and the public who owns that money has the right to demand that institutionalized gambling, speculation, or any kind of non-productive use which they deem harmful, be banned, limited, restricted, controlled or whatever.

->   Mutual credit is denominated in hours and/or commodities. Fed/commercial banks denominate in ones, fives, tens, twenties, and hundreds.

->  Mutual credit can create a commodity backed currency (see below). The Feds can too, but they won’t.

->   Mutual credit extends credit without interest; the Fed/commercial system extends credit, but they call it “lending money” and then they charge interest.

->   The Fed/commercial system favors absentee ownership (even the banks are owned by absentee landlords), competition, undemocratic money creation, and recognizes economic hardship of bankers but not of citizenry (at the expense of citizenry). MC is local in all respects.

->   David Korten describes capitalism as “Use of money to make money for those who have money.” That is an apt description of the Fed/commercial banks. Mutual credit might be described as “the use of money as a means of exchange.”

->   The Fed/commercial system has its “Lender of Last Resort” and “Moral Hazard” which means that there is a moral hazard when you charge the citizenry for insurance against bank failure while that insurance actually encourages bankers to take more risks knowing there is a “lender of Last Resort” to bail them out because they are “too big to fail.” The “moral hazard” is that, in this casino, money earned is private, and money lost is public.
    As Noam Chomsky said, neoliberal global capitalism means “socialism for the rich and capitalism for the poor.”  The MC system sees the fallacy in centralization and bigness and holds local bankers accountable for their actions.

->   The Fed thinks money is global and should move freely anywhere it wants. MC says that money is local and communities can block attacks from foreign money. The phrase "economic imperialism" is not in the Fed/commercial banking dictionary. Mutual credit understands economic imperialism and is a means of combatting it.

->   The Fed/commercial system claims to lend to all "creditworthy" people and proceeds to lend at high rates to the poor and low rates to the rich. They then pride themselves on their careful policing of “predatory lenders.” Under the Fed system, many people are simply not "creditworthy."  MC lowers the bar. MC recognizes that money, like free speech, emits from the individual, not government and not banks.

->    Commercial bank lending is like musical chairs: somebody HAS to lose at each round because money is lent into existence, but the money to pay the interest is not; bankruptcies are part of the scheme. And it is the bankruptcies themselves that prop the system up because the money lent into existence continues to circulate even though the “borrower” has gone broke.
    This situation cannot be written off as being simply “risky,” as in “life is 'risky'.” The money system is a public infrastructure and implies equanimity, but Fed/commercial system is set up to require a certain number of human sacrifices per year to appease the banking gods. This is a system which culls the innocent, simple, and ingenuous, while assuring that only the most abhorrently avaricious, and rapacious will survive. This is not survival of the fittest — it's survival of the most morally and ethically repugnant.


The big difference is that mutual credit is community based and its money creation is based on community needs and desires which is based directly on their economic activity in commodity exchange. The gist is that the Fed guys have taken the notion of credit or “collaterization” to be the only feature of banking that they are interested in, and they have had One Hell Of A Big Fat Party with it.
    The big difference is that Fed/commercial banking creates money based on a single criterion: profit. They don't care what happens to individuals; to families; to the quality of life; to the landscape; to the town; to the community; to the State; to the Nation; or to the Earth. Their SOLE criterion is profit. If you can turn a buck on the deal, a check for $10 billion can be cut right now.
    That is money that is created out of thin air, and no community voice will be heard as to the effects of the "loan" on others.
    The Fed/commercial system is a means of imposing the elite's will on communities which would otherwise want no part of the plan. For example, if you went to most any town or community and tried to drum up interest in privatizing schools you would find more opposition than agreement. People don't want their schools which are now locally controlled, privatized and run for profit. They don't want to sell out their kids to corporate interests. So finding people in the community to work on the project would be tough. But when George Dubya was governor of Texas he pledged to provide $3 billion in Federal loans for new charter schools in Texas.
    Thus, any community opposed to privatized schools has just lost the battle. This is how economic imperialism works. It took a whole lot of money to draw out the greediest most aggressive and insensitive people in the state to force privatization on communities who otherwise wanted no part of it.
    This kind of economic imperialism goes on daily around the world in the form of the MacDonalds invasion and the Wal-mart attack. It’s called Americanization in Europe and it destroys communities. Be prepared:
Does Ithaca Need Wal-Mart?” by Paul Glover.
    If somebody came up with an idea of how to make money by getting people to chain their kids to a post in the back yard and feed them dog food, there can be little doubt that, if the returns were great enough, it would eventually be funded by some enterprising bank or politician.
    Local mutual credit banks would allow communities to combat that kind of attack.

I will not look for data that shows that mutual credit is more free from corruption and trickery than centrally issued money. There are plenty of people around who would defraud their local mutual credit system. That is not the point; the point is that hucksters at the local level can be held accountable. Corporate fraud cannot. The Savings and Loan scandal (and corporate accountability in general) has made that entirely clear. If a society ever evolves to (returns to, actually) the point that corporations and government workers can be held fully accountable then some forms of State issued currencies might become less risky, more democratic and more attractive.  


Extending Credit is not the same as Lending Money

Creditworthiness is a person’s value in a “Net Worth” kind of way. It’s a lending against their Human Capacity. Jim can swim 3 km per hour Judy can swim 2. Judy can do math better, faster and with fewer mistakes than Jim. Each has their abilities and that can be an economic factor, but since one person’s strength is another person’s weakness, people tend to have similar Human Capacities.
    Human capacity is finite. Credit is finite.  Neither Ross Perrot, Bill Clinton nor Dubya Busch can do anything infinitely better than someone else. Nonetheless, in today’s Money society, Bill Gates is permitted to appear infinitely “better” than someone else. Everyone else. Today he can be 3 billion times richer or more "creditworthy" than an Indonesian farmer.... and next year he can be 4 billion times more "creditworthy". There is no limit. But as a human being, Bill Gates is not infinitely better than anyone. He may be better at some things, but he cannot do other things: like grow food, like the Indonesian farmer.
    If our money system today was a true representation of life, Bill Gates would have to be better than everyone else in the world at fixing airconditioners, film directing, and septic tank pumping. He would have to be able to grow food better than anyone else. He would have to be a better typist than anyone in the world, and so on. Sadly, none of that is true, and there is an obvious problem here.
    One person’s creditworthiness cannot be infinitely greater than that of another. In fact, within a very narrow spectrum, everyone around the globe has essentially the same creditworthiness.
    Yet when Bill Gates wants to borrow $4 billion so he can scam the German government with some bug riddled software “subscription” the American banksters stand ready willing and able to accommodate their “prime” borrower by extending credit. This defies the Laws of Money: if Bill is a prime customer, the bankers should be lending him real money; comodity backed money. But they can’t do that because they don’t have any.

    Furthermore, look at credit from the IOU model:
    An IOU between friends is so common that many times we don’t bother to write them down. An IOU between community members who don’t know each other strains the security of that IOU. An IOU between total strangers stretches the limits of security to the breaking point, and exchanging IOUs anonymously with people in foreign countries who speak different languages and have huge cultural and economic differences, verges on the certifiably insane. Given this state of affairs, it would seem silly to base a national currency on credit... and then exchange that currency for foreign currencies. But that is exactly what we are doing today.
    In the mid-1990s the Japanese system had strained so much that they were considering 100 year home mortgages. That is to say, accepting an IOU from generations of people not even born; possibly never to be born. There is nothing logical or scientific about extending credit to people who may never exist. In fact there is nothing very scientific about extending credit for 20 or 30 years. IOUs are only secure for short distances whether that distance is measured in miles or years.
    A more logical approach to the home mortgage credit phenomenon would be to lend money not extend credit. But for that one needs to have actual money which is not credit based. Commodity backed money does not exist either in the present system or in mutual credit system. Fortunately the MC system provides a means of creating commodity backed currencies. See “Creating More Money” below.  


A national system of mutual credit banks with a national commodity backed currency would solve most of the problems outlined above. The only problem with mutual credit is the perception that it is a community currency, and while that is true, it can also be the design for a national system.

The key to this proposal is that each community would have its own bank. One bank. Their bank. And that bank would be run by the local people, much as local schools are run now with their Parent Teachers Associations and open government. That is, it should be a participatory democracy, not a representative democracy.
    To keep the banking system from falling under the control of a few self-interested individuals the leadership should not be permitted to become entrenched. Officials (president, v.p.  etc) should not be permitted to hold leadership positions for more than 4 years in their lifetime; board members should serve no more than 4 years in any 10 year period and no more than 2 years in a 4 year period. Boards of directors should be as broadbased as practicable; 50 or 100 ... 150 would help decentralize the board. The bigger the better. Salaries should not be higher than other businesses and volunteerism should be encouraged. You get the drift. The whole community should be involved. A community that takes no interest in it’s banking system will soon have an outsider in charge.
    What is a community? Good question. People in the US probably have lost that information. That's a tough break. Europeans, Asians, Africans, South Americans will have to re-educate Americans.

When the Federal Reserve was set up they had the right approach; they set up 12 regional banks. What they got wrong was choosing geographic regions instead of economic regions. If they had done it right, their regional map would look less like a checkerboard and more like a topographical map. There would be spots of cities surrounded by suburban areas which would in turn be surrounded by rural, farm, and parkland, etc.
    Each community could adopt policies according to the economic region they were in and they could change those policies to suit their needs. The communities could be informed and educated about which policies will facilitate which goals via a national networking system.
    The reason for this arrangement is that money is local (see above), and regions that produce commodities (rural/farm) simply cannot compete with regions that produce money (cities). Granted, that analysis is based on observing the damages caused by credit money. What would happen with commodity backed money? Who knows? There is no data on that for the simple reason that there has never been a true commodity backed currency. So setting up regions is just a precaution.
    So establishing economic regions establishes a baseline from which communities can choose policies to make decisions. Want to increase growth? Do this... Want to slow growth? Do that. It becomes a community decision.
    But don’t we have that now? A democracy? No. Most local communities are representative democracies not a participatory democracies. The sad fact is that virtually all representation goes to monied interests, not to the citizens. Correcting the banking system can change that.

REGIONS... summary
1)   It creates the path by which individual communities can connect with others in a similar economic situation rather than remaining isolated. Banking policies for a city may be entirely different than those for a farm community.
2)   It allows thousands of small communities to pool resources and information with other communities with similar economics and similar goals
3)   It simplifies the implementation of a single national currency because having thousands of individual community banks is the route to an exchange rate nightmare. By designating a few economic regions, exchange rates may be unnecessary; banking policy might resolve that.
4)   It is an implementation aid. It maps out where the mc banks are, and where they are not. Knowing that a community is covered by an mc bank can mean that a boycott of the fed bank can commence and hopefully it will shut down for lack of business. This is the thin end of the wedge. (!)  (And to think that Barclay's just shut down 167 community banks in the UK :-)
5)    By having one bank per community there is a basis for establishing collaterized lending. From such a community core they could establish just how much money that community could lend based on the total value of the community and its ability to use its assets as collateral.


The typical mc transaction goes like this: Jim, who has no money goes out and has his fuel oil tank filled for the winter by Judy. The cost: MC$100. Jim pays with a  mc note: (think of it as a check) that says “Jim pays Judy MC$100.” The bank debits Jim’s account and credits Judy’s.
    In a normal bank this would involve some shuffling around of money on the computer from one account to another — that is, shuffling of money that already exists. In a mc bank, the money that goes into Judy’s account is created by Jim’s check and certified by the bank. Got it? New money is created when Jim gives his check to Judy. And Jim is now in hock for MC$100. When Jim finds some work and he gets a check and he can cancel the debt.


Traditional mc theory says that if Jim did have money in the bank, then that money would be used to pay Judy, thus preventing Jim from creating money. As Riegel himself says, “Only the moneyless can create money.” But this does not follow the rules of the IOU, it only follows the rules of banking. What Riegel is saying essentially is that a person with money cannot legitimately issue an IOU.
    The theory of the IOU says that when Jim gives Judy his IOU, then Judy may buy something else with it, legitimately, and the IOU can circulate as money. But the banking system cuts that circulation short instantaneously through its expedient and omniscient clearing process. This brings an abrupt halt to the circulation of money.
    There is nothing in the IOU theory that says that a person with money cannot issue an IOU. There are good reasons to allow a person with money to issue more, and circulation is a prime example. The rule to apply here is caution, not abstinence. To abandon caution on this point is to lead to the present credit fiasco we have on our hands today. But to abstain is to limit the money supply to the point of strangulation. Society needs a currency that can circulate. To that end I propose the creation of money by other means and will use the commodities market for an example.

Creating Commodity Backed Money

Here we are at Bob’s Fine Commodities, a commodities market. Today the market happens to be empty and the books are free of debt, and Bob has MC$30,000 in his bank account. Lucky Bob. Tomorrow Bob will get in a load of sorghum powder and that will cost him, coincidentally, MC$30,000. The local mc bank has decided to let Bob create new money by issuing an IOU for his sorghum, rather than debiting his account for all that fine sorghum powder. Here’s the method and the reasoning:

    1)  The community would benefit by having more money in circulation.
    2)  Bob will neither gain nor lose by the transaction, and it won’t affect his present account.
    3)  The new money will go to the sorghum producer, not Bob
    4)  The money created will be fully redeemable; fully backed. And it will not involve a warehouse or Fort Knox; it will be backed by a commodity in the marketplace.
    5)  It’s all done via a special account (ie they give Bob a Second account) on the mc bank computer which is debited MC$30,000 when Bob pays the sorghum producer.
    6)  It will be extinguished as Bob sells the sorghum, and deposits the checks
    7)  Profits go to Bob’s regular account when all the sorghum money is extinguished

    8)  This same scheme can be applied cautiously to other situations. Bob could have a special account for each commodity he deals with. Other businesses that buy and sell could use the same system. Businesses could even use it with their payroll. This would be a major accomplishment: for the first time labor costs would be part of the commodity backing of a currency.
    9)  The decision to increase or decrease the money supply is entirely local
  10)  When Bob gets a load of seaweed and fly wings in, the bank can opt out.
  11)  Without Fort Knox type warehousing the value of the commodity is always the current market value; something that did not/could not occur with the Fort Knox gold backing.
  12)  It’s brought to you by the makers of MC banking. Nobody else can do it so cleverly and with such decorum.

This is all essentially a credit transaction but it differs from the home loan kind of credit transactions/money creation we have today.
    1)  There is no interest.
    2)  The collateral is not future dependent; it exists immediately.
    3)  This is a currency that can withstand foreign currency exchanges based on market value.

This scenario opens the door to another dimension. One of the features of mutual credit is that the accounts must balance to zero. If Judy has MC$100 and Jim has MC$-100 that gives a MC$0 balance. Thus it is easy to see that someone must always have no money. It may be possible for Jim to owe MC$1 to 100 people and thus Jim would have a MC$-100, while everyone else would have a positive balance. Still that’s not so encouraging. But as we saw above a person could have two accounts, one zero or negative, and one positive and the total bank balance would still be zero. Mull it over and let me know, I think it’ll work just fine.

The Right to Not Create Money

One of the connundrums of the modern ecologist battling against environmental destruction is: How can you reward someone for NOT cutting down the rainforests?
    That’s a dang enigma, that is. How can you reward people for not doing something that’s harmful but profitable? But of course the solution is (entirely) in the money system... Look at what we have today in contrast to mutual credit:
TODAY: a bunch of elitists who produce nothing of value control the issuing of money.
MUTUAL CREDIT: says that it is producers of goods and services should issue money.

And therein lies the crux of the matter.

Why? Well, because when government and bankers are in charge of the money supply they want some action. They want a flurry of economic activity. Bankers want more and bigger customers even if those customers are headed straight for bankruptcy — they are the most profitable kind. When people are in charge of their own currencies they may very well choose a reduced money supply and less economic activity.
    I just read a little story about the Kogi community in Columbia for instance. It seems that the World Bank had some money for them all bundled up and ready to go, for “sustainable development.” The Kogis were less than thrilled. They wanted to know what the Bank meant by “sustainable” and what is “development?” Then they told the bankers to get lost. Those Kogis are pretty smart. Real smart. I have never heard of nation telling the World Bank to shove off... even countries with their own "economists."
    What is more is that MC is the route to equitable exchange rates and to someone inclined to cut down trees in the Amazon that means better pay. I don’t know what they get for trees down there now, but when the world price of processed cashews is $700 a ton (35¢ a pound) then you know the trees are virtually free to Americans. A proper exchange rate would mean the north would buy less and the south could reduce their labors.
    And that’s how you can reward people for not doing something that’s harmful but profitable.  


Now we have a system for creating money with some integrity. Banks can lend actual commodity money and get out of the infinite credit business. No more excuses for fractional reserve lending. This would slog down the feeding frenzy that now exists in the hyperactive US style Infinite-Credit markets but since the creation of money in the mc system would be in the hands of commodity producers, money to pay interest would be created easily enough. No problem there. John Turmel and others have focused on usury as their sole goal but I am inclined to think that it is not interest per se that is the problem; it is the combination of the creation of money with interest.
    Is there a case for money creation via credit lending? If so, I have not found it yet. Collaterized commodity backed money lending: yes. Collaterized credit money creation: no.
    I will not get into the issue of savings accounts, interest and demurrage until this issue of commodity money creation has been through some extensive peer review.

It is worth noting that there exists now a banking system that has many of the features of the mutual credit system: Islamic banking.



You will be hearing a lot these days about Islam and “Islamic Fundamentalists” in the news, but the one thing you (Americans and British at any rate) will not be likely to hear much about is the Islamic Banking system which is closer to mutual credit banking system than the Fed/commercial system. Islamic banking is interest-free and not-for-profit.
    I have always felt that money is a Science thing, not a Religion thing and surely western bankers will scoff at the Islamic system. Nonetheless, the west could learn something from Islam. It is, after all, the west that has the “faith based” monetary system... and it is the western system which is based neither on science nor religion.
    If there is a conflict between Islamic countries and western ones this is a fundamental issue because the American form of capitalism requires continuous growth and it will be the goal of the US banking system, now that Russia is out of the way, to destroy the Islamic system.


    A) Any predetermined payment over and above the actual amount of principal is prohibited. No interest; no fees; no “favors.”
    B) The lender must share in the profits or losses arising out of the enterprise for which the money was lent.
    C) Making money from money is not Islamically acceptable. Money is only a medium of exchange, not a commodity; it has no value in itself, and therefore should not be allowed to give rise to more money, simply by being put in a bank or lent to someone else (ie. no interest payments). This purchasing power (money) cannot be used to make more purchasing power (money) without undergoing the intermediate step of it being used for the purchase of goods and services.
    D) Uncertainty, risk or speculation is also prohibited. No currency casino; no futures; no options; no forward foreign exchange transactions.
    E) Investments should only support practices or products that are not forbidden —or even discouraged— by Islam.  Trade in alcohol, for example would not be financed by an Islamic bank; a real-estate loan could not be made for the construction of a casino; and the bank could not lend money to other banks at interest.


    Now the salesman has got his foot in the door. He will no be leaving soon and he will not take a polite “no thank-you” for an answer.  



There is a growing movement that has suddenly and mysteriously appeared on the scene — seemingly global — that supports the idea that money should be issued interest-free by the state. All the figures show that some 95 percent of money is issued by banks at interest and since the banks do not create the money to pay the interest, the system will collapse.  Nobody seems to disagree on that point (except the monatarists).
    The disagreement is on the solution. The new proposal, the S Plan (or Soverignty Plan, among other names),  suggests that moving the ability to create money from the Right arm of the Political/Corporate/Banking cartel... to the Left arm, will fix all the problems. Mutual credit backers complain that this still denies the real creators of money, commodities producers, their right to create money.
    The sudden dominance of the S Plan and the superficial arguments used by its promoters suggest that there is some powerful lobying going on by people with a lot of money.
    This is a very dangerous plan, for it replaces one fiat currency with another and props up a bogus system which leaves the money creation to an elite group.
    The following is a list of names and organizations I have found associated with the promotion of government issued money. These people may not be part of a "conspiracy" but they certainly display a grand naïveté in their approach to money and heirarchical organizations. They need educating.  EDUCATE THEM.


Peter Challen, Randall Wray, John Courtneidge, Frank McManus, Kevin Donnelly, Ken Palmerton, Frank McManus, Alistair McConnachie, Brian Leslie, Diana Forrest, Michael Hudson, Fred Harrison, Wes Burt, Richard Kay, Dr. J. H. Hertz, George Sale, Alistair McConnachie, Mike Rowbotham, John Johansen-Berg, Jack Hornsby, Donald Martin, Robert Arnold, Edward Hamlyn, David Weston and James Gibb Stuart, Don Bethune, Finlay Thompson,  Richard Douthwaite

Sustainable Economics Newsletter

The Bromsgrove Group
The Christian Socialist Movement
British Association for Monetary Reform
Campaign for Interest Free Money
Christian Council for Monetary Justice
Christian Ecology Link
COMER (Committee on Monetary and Economic Reform)
Community for Reconciliation
Forum for Christian Peace Groups
Forum for Stable Currencies
Green Party Economics Policy Group
Independent Thinkers
Institute for Rational Economics
Nascent Youth Group
Scottish Monetary Reform Society

Also see:
NESARA has sponsored US legislation that proposes such a state issued currency. The only redeeming factor in the Nesara plan is that it is not run for profit itself. Nonetheless the for-profit lenders are left in place albeit more restricted.



Boiled down it looks like this:

1)   The US Federal Reserve banking system needs an overhaul
2)   The foreign currency exchange system needs an overhaul
3)   The free movement of credit money across borders is a major problem
4)   The mutual credit banking system solve the problems

Over-centralization and over-simplification in the form of one-size-fits-all currencies are major culprits.
    To those for whom this is such an immense problem that it simply cannot be fixed I say, please don't shoot the messenger. I will be the first to admit that it seems to be an insurmountable problem, but the first thing is to get past the denial stage. You can't fix a problem that is banned from the discussion.
    Start by acknowledging that China and India don't buy into the "money is a commodity" lie; you cannot buy and sell their currencies. Capital controls are common in many countries. Spread the word.
    Democracy is where everyone has a vote. Participatory Democracy (as opposed to representative democracy) does not concentrate decision making powers in the hands of a few, it has a broad base. Decentralize. This is a civil rights issue.


Thanks to friends for helpful suggestions:
       Cal Schindel
       Peter Scott

© 2001 copyright  J. Walter Plinge, France
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Coming soon to a CRT near you:
There's No Such Thing As “Green Investing