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Written by Rudy J. Fritsch. You can read the first part here LINK.
There is an aphorism that states “it’s not getting the right answer but asking the right question” that is crucial. Readers of this site are surely aware of blurbs like ‘real money’, ‘honest money’, ‘Fiat’ money, printed money, borrowed money… ad infinitum.
Indeed, Aristotle named the desirable qualities of money;
- Money must be durable
- Money must be portable
- Money must be divisible
- Money must have intrinsic value
What question were Aristotle’s qualities the answer to? The question ‘what makes good vs not so good money’. This question is fundamentally different from ‘what is money’. If we ask what money is better/not so good, we assume that we already know what money is, and what money is not… a big assumption.
During recorded history, many things played the role of ‘money’ (mainly store of value and medium of exchange); cattle (pecus… Roman origin of pecuniary) salt (origin of salary) cowry shells, cacao beans, even cigarettes in POW camps during WWII… and of course Gold and Silver through the ages.
But before thinking about what is better money, we need to decide what is money… bad or good… and what is not money. One way to understand this dichotomy is to study history; the history of money… and the history of real vs. fake money.
Notice that cattle, salt, cowry shells, cacao beans, cigarettes, monetary metals etc. are all some kind of ‘stuff’… that is they are real items. Not a single ‘promise’ or ‘IOU’ in the bunch. On the other hand, paper ‘money’ (bank notes) is nothing but a promise… of something.
To make this clear, let’s simplify; consider a pound of sugar as the ‘stuff’… and an ‘IOU a pound of sugar’ as the promise. I borrow a pound of sugar from you, and give you an IOU for ‘one pound of sugar’; then the difference becomes obvious; the ‘stuff’ (pound of sugar)… and the promise… the paper IOU.
So what, you say? Well, you can certainly use the sugar to sweeten your coffee… but not so much the (paper) IOU. If you hold the pound of sugar, great; you have ownership, and can put it to use; but the IOU, no way. Only if you redeem the IOU will you hold any real value.
Notice that the pound of sugar is an asset… no matter who holds it. On the other hand, the IOU is an asset while it is in your hand; a claim on a pound of real sugar. Crucially, from my point of view the very same IOU is a liability; after all, it is a claim on me for a real item, a pound of sugar that I have to give back to you on being presented with the IOU.
The IOU is either an asset or a liability, depending on the point of view; the writer of the IOU vs. the holder. On the other hand, sugar is a ‘pure’ or ‘real’ asset; valuable no matter in whose hand it happens to reside.
This is what Aristotle considered ‘intrinsic value’… sugar has ‘intrinsic’ value, rather than the ‘derived’ value the IOU has. In simple words, the IOU has value only in so far as it is redeemed… and redeemable. This is often called ‘credit risk’ or ‘counterparty’ risk… the IOU is not very rugged; it will become worthless if the IOU writer defaults. Real stuff has no counterparty risk.
The very same IOU that is an asset in your hand is my liability… after all, if you present me the IOU, I am obligated to return to you a pound of real sugar… and so extinguish the IOU. Indeed, once redeemed, the IOU becomes worthless; paid in full… but the pound of sugar is still a pound of sugar… certainly not worthless.
Thus, money extinguishes debt; that is the hallmark of ‘real’ money. When (if!) I return your pound of sugar, the IOU is redeemed; the debt disappears, is extinguished by real ‘stuff’. We could even negotiate that instead of a pound of sugar, I give you ½ pound of salt; if you agree, then the IOU is also extinguished, again by real stuff. Substitute Silver and Gold for sugar and salt…
Suppose you decide to trade your IOU to Jane for the pound of sugar, rather than handing it back to me… if Jane agrees, you get your pound of sugar… but the debt is NOT extinguished; now Jane holds it, and I will have to give Jane the pound of sugar if she presents me with my IOU. The IOU served as medium of exchange; but NOT as extinguisher of debt. IOU plays (fake) monetary role, but is not money as it cannot extinguish debt.
Not only that; suppose I do not use the pound of sugar I borrowed, but instead lend it to Joe; in turn, Joe gives me an IOU for a pound of sugar… and magically, one pound of real sugar now has two IOU’s against it. Who would have thought! One pound of sugar, two IOU’s claiming the same pound of sugar. This process can proliferate with no end in sight; Joe could lend out the sugar again, etc… Endless IOU’s ‘backed’ by the same pound of sugar.
If you come to claim your pound of sugar, that I no longer hold, I cannot give you your sugar. Joe now has it; all I have is another IOU. Would you exchange the IOU that I gave you for the IOU Joe gave me? Mere exchange of debt notes… We start to see how real stuff is categorically different form IOU’s; debt notes masquerading as money cannot extinguish debt; they can only change the holder of the debt.
But it gets better, not just for silly debt like a pound of sugar IOU, but for debt in the real world. Let’s look at two companies; call them Co. ‘A’ and Co. ‘B’. Company ‘A’ makes grommets… and Company B buys grommets in order to incorporate them into its own product line of widgets. ‘A’ sells a hundred grommets to ‘B’; then on ‘A’s books, in Accounts Receivable, an entry is created for ‘one hundred grommets sold to ‘B’ for 100 monetary units, payable in 30 days’.
Similarly, in ‘B’s books, in Accounts Payable, an entry is created for ‘one hundred grommets bought from ‘A’ for 100 monetary units, payable in 30 days’. So far, nothing unusual; in 30 days, ‘B’ pays ‘A’, and the accounts are settled… the IOU is redeemed. Notice the IOU (for 100 grommets) is an asset on ‘A’s books, but a liability on ‘B’s book… just like the IOU pound of sugar. These IOU’s are two faced, assets and liabilities at the same time, depending on point of view.
Now suppose management of ‘A’ and ‘B’ decide to merge the two companies; ‘A’ and ‘B’ merge to become Company ‘Z’. So what happens? Well, the books of ‘A’ and ‘B’ are consolidated; the total assets and total liabilities are added, and appear in the books of the newly created Company ‘Z’.
But wait; if ‘B’ owes ‘A’ (payables of ‘B’, receivable of ‘A’) and ‘A’ and ‘B’ no longer exist, will these numbers be transmitted to ‘Z’; that is, ‘Z’ owes 100 monetary units… to ‘Z’? Whoa. No way; the items cancel each other… any debts or payments due to other companies will stay… but the ‘A-B’ transactions cancel out. The IOU is consolidated out of existence by the merger of two previously independent companies.
Meanwhile, what about the grommets that ‘B’ just bought? Clearly these are now in the inventory of ‘Z’; and ‘Z’ will incorporate them in its product line of widgets. The real stuff stays; the IOU’s disappear. Real stuff is potentially money; real money cannot just disappear. IOU’s are not money; they can and do disappear. It’s that simple. Now substitute Treasury and Federal Reserve for ‘A’ and ‘B’, substitute treasury bills and Fed notes for grommets and widgets!
The bottom line; real stuff, ‘pure’ assets can be ‘real’ money… good or not so good. IOU’s that are assets/liabilities cannot. Unfortunately, the word asset is misused, applied to both ‘pure’ assets and to promises that are assets in one hand but liabilities in another. This is the core reason why the fake money system we currently live under is dying… and only real money comprising real assets can save our economy… and our civilization.
To add another layer of deception, our current ‘system’ not only uses IOU’s as fake money… but is chock full of IOU’s for… IOU’s! IOU’s that say ‘I Owe You’ and ‘I Owe you’! A promise to return not a pound of sugar, but an IOU for a pound of sugar… If this does not seem to make any sense, that’s because it does not.
There are endless ‘derivatives’ not only based on real goods, such as commodity (i.e. grain) futures which have a legitimate market function (replacing and enhancing forward sales) but derivatives such as futures and options on forex (fake money like Dollar, Pound, Yen, Euro etc) futures on interest rates… as well options on equities. Derivatives today account for about two quadrillion Dollars and are nothing but leveraged gambling.
Even if you are not too clear on what a Quadrillion is, you probably do have a sense of what a million Dollars is; the price of a brace of Rolls Royce cars, an upscale house, a modest yacht. Well, If you spent a million Dollars a day… (every day!) since the birth of Jesus… you would still not have spent your trillion; and a Quadrillion is a thousand of those ‘menial’ trillions.
Of course, Quadrillion is only the ‘notional amount ‘ put at risk. Supposedly the assets/liabilities balance out that is the bet has two sides… and they do; until they don’t. With insane leverage, and no real stuff just endless IOU’s, counter party failure is inevitable. A small miss in the direction of the gamble is lethal; like Long Term Capital, whose gamble went wrong, and in 2008 almost brought down the whole financial system.
The real value of their derivatives kicked in (gamble went against them) and drained the total capital of LTCM (measured in Billions of Dollars) in a matter of weeks. The parties holding the opposite side of the bet (big banks) were put at risk, and only massive ‘money’ printing by the Fed avoided total systemic collapse.
It is only a matter of time till this financial house built on sand collapses; and in deed, it is in the process of collapsing right now… the so called ‘Great Reset’ is underway as we speak.
Rudy Fritsch was born in Hungary, and fled Bolshevik tyranny during the Hungarian Revolution of 1956. His family had lived through WWII and the consequent Hungarian hyperinflation, thus he has intimate experience with financial destruction. As mainstream economics “The Dismal Science” made no sense to him, he ended up studying Austrian economics, the only school of economics grounded in the realities of Human Action. Holding a master’s degree in Monetary Science, he came to admire Professor Antal Fekete’s work and made a firm commitment to help preserve and disseminate his legacy. After attending Professor’s ‘Gold Standard University Live’, Mr. Fritsch authored a book titled “Beyond Mises” that is meant to bring New Austrian Economics and the Gold Standard to the understanding of non-economists.
This approach makes a crucial simplification: It assumes that “real things” have and keep a certain “real value” – which is wrong in two aspects: First, “real things” AGE / SPOIL. Their value goes down even when they are not used up and all other circumstances stay constant – what they do not. Which is the second wrong assumtion: The claimed “real value” of “real things” is itself completely dependend on some people expressing and implementing some NEED of said “real thing”. As soon as the need for some real thing goes down, said “real thing” loses it’s “real value”.
Thus, the article makes a bunch of wrong assumtions rights from the beginning, which drags it entirely into question.
money is symbolic as Simmel demonstrated: ‘philosophy of money’ it permits or degrades value, based upon perception. if one idiot believes a tulip is worth 10,000$ it is —a liter of water for an amerikan in flint mich could be sold for 5$ but in Linz it would be worthless for global services prices will be more similar—airline travel price can easily be manipulated via monopoly, govt controls, tariffs, etc
Pretty good.
So he fled Bolshevik tyranny and now lives under capitalist tyranny…
essentialistically money attempts to quantify quality—only partly possible if backed by a finite universally valued substance. so far the best has been gold, however not finite. money is no longer backed by anything except govt promises, leading to currency instabilities, inflation, deflation, etc
Sometimes, Yuri, the promises are better than limited substances, especially if the substances start to limit useful goods and services. We saw this with gold before the (first) American Revolution: For example, the 1765 Stamp Act required British colonists to pay a tax in gold, gold most colonists did not have. However, the oligarchs at the Bank of England, a private central bank like the Federal Reserve controlled plenty of gold. As such, the American Colonies faced crippling austerity thereby sparking the revolution to regain control of their own money, which was largely fiat, paper colonial scrip at the time.
Promises as money do not cause instabilities in and of themselves. What does cause instabilities is banker gangsters hitting people with wars and regime change conflicts like the American Revolutionary War, British counterfeiting of American money, etc. when they try to control money supply in the people’s interest.
‘A History of Central Banking & the Enslavement of Mankind by Steven Goodson.’ @SurvivingWeimerika on Odysee (a new video sharing platform).
“A book on the effects of fractional reserve banking on humanity. How it has hindered the progress of humanity to develop further. How usury has been such a restrictive soul draining force on the planet. How a peculiar tribe of people have weaponized fractional reserve banking against the rest of humanity.”
“Let me issue and control a nation’s money and I care not who writes its laws.”
— Mayer Amschel Rothschild
“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.”
— James Madison
Deuteronomy 15:6 (New International Version)
“For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you.”
Deuteronomy 23:19
(Douay-Rheims Bible)
“Thou shalt not lend to thy brother money to usury, nor corn, nor any other thing:”
(New International Version)
“Do not charge a fellow Israelite interest, whether on money or food or anything else that may earn interest.”
* The context of which in Deuteronomy always applied to Israelites.
Marco, its good to see people that understand a bit. Eventually enuff people will see it (i hope) to make some positive change. Ya gotta wonder just how long fractional reserve banking can go on. A person would think that the debt will crash the system, 1929 etc All I can do is sit back and watch.
Part 1:Only partially correct. Money, real money, serves as a means of indirect exchange of real goods and services. Money is accepted for one’s goods and/or services with the expectation that it can then be traded for another good or service. Anything can, and has been, money. As a kid, I was part of a market utilizing marbles as money. This “money” and market developed, as these things do, organically over the course of a few weeks.
Thing is, money is NOT the problem, the Jews’ grift-money, fiat-currency, is. The Jews’ grift-money is worse than debt based, as it is based on theft, from us. When you spend the Jews’ grift-money, you are literally spending that which was stolen from you, yours, and your fellow countrymen.